Here’s how to be your own financial advisor


Financial advisors and financial planners have had a bad rap in recent times, courtesy of revelations from the banking royal commission.

– Tied agents have an inherent conflict of interest, meaning clients can be put into high-charging and under-performing funds.

– There’s also the risk of advice being downright poor, including being influenced by the individual financial planner’s natural biases.

– I’ve heard how financial advisors can put their clients into 30 different managed funds. Given that each fund may have 50 or more individual positions, that’s over-diversification and duplication on a massive scale.

– Finally, there’s the cost. The client wears the typically one per cent management fee from each fund, plus any performance fees. On top of that, financial advisors typically charge clients one per cent of total assets under management. On a $750,000 total portfolio, you’re likely paying your financial advisor $7,500 every year for their advice, plus a likely $7,500 in management fees within the various funds.

Save yourself $15,000 a year and be your own financial advisor.

Asset allocation

The first step is asset allocation.

I like to keep investing very simple.

If you are employed with a steady income, your non-housing allocation could look something like this…

Shares — 90 per cent
Cash — 10 per cent

If you are a self-funded retiree, with a SMSF balance of at least $750,000, your non-housing allocation could look something like this…

Shares — 80 per cent
Cash — 20 per cent

Financial planners will cringe at the allocations to equities.

Their job is twofold.

  1. To minimise risk for you, the client, while attempting to maximise your returns.
  2. In minimising your risk, the odds are you’ll remain a fee-paying client for many years to come.

Risk and the truth about balanced funds

One of the very first things a financial planner will explore is your risk profile.

Because most people above 55 years old want to minimise the downside risk, particularly the risk of running out of money in retirement, they end up being put into so-called balanced funds.

A balanced fund will typically have a 60/40 split between shares and non-shares.

The share portion will typically be made up of domestic and international shares, with the non-shares portion being a mix of something like bonds, property trusts, fixed income and cash.

Does such a fund minimise risk?

In theory, yes.

But, it doesn’t solve for the biggest investing risk you face — how you control your emotions during times of general stock market volatility. I’m talking about resisting the urge to sell when stock markets are tanking, hence bailing out of shares at the worst possible time.

Because of its high allocation to bonds and the like, a typical balanced fund simply can’t generate above average returns, over time. But because bonds are less volatile than shares, nor will a balanced fund typically fall as much as the stock market during volatile times.

Lower risk, lower reward… but beware high fees

Your typical balanced fund will therefore be lower risk and lower reward, particularly if it has high fees. The Perpetual Select Balanced Fund, for example, has an estimated annual management cost of a hefty 2.3 per cent, or $17,250 per year on a $750,000 investment.


Shares have been shown to out-perform bonds most of the time over 10-year periods. The further out you go, the greater the odds of shares beating all other forms of investment.

A 65 year old retiree should have another 20 odd years of investing ahead of them, hopefully more.

Presuming you can control your emotions, resisting the urge to bail out of the stock market when the stock market goes through its inevitable periods of volatility, a high allocation to shares will maximise your returns.

Your risk is not volatility, but how long you can stay invested in shares. We’re talking 10 plus years, at a minimum.

If that’s you, you can kiss goodbye to the balanced fund.

Be your own financial planner… and save yourself $10,000 per year, maybe more

I’m no financial planner. And our AFSL allows us to provide general financial product advice only, and doesn’t take into account your personal circumstances.

But having had over 30 years of hands on investing experience, I do know a thing or two about stock market investing.

With all that said, and recognising this is NOT for everyone, for SMSF’s with at least balances of $750,000, here’s my one-size-fits-many DIY financial planning advice.

Equities (80 or 90% allocation)

40 or 45% – International shares: Vanguard Index International Shares Fund
20 or 25% – Australian large and mid-cap shares: Firetrail Australian High Conviction Fund
10% – Australian mid and small-cap shares: QVG Opportunities Fund
10% – Australian small-cap shares: Perennial Value Microcaps Opportunities Trust

Disclosure: My three children each have a Vanguard Index International Shares Fund. My SMSF has investments in the QVG Opportunities Fund and the Perennial Value Microcaps Opportunities Trust. Due to a conflict of interest, I have not considered The Motley Fool Australia’s funds for inclusion. The Capital Club has no financial or other association with any of the above companies.

On a $750,000 SMSF balance, your shares allocation would be $600,000. Such an allocation should grow, on average, around 10 per cent per annum, meaning if untouched, it could double every roughly seven years.

Financial planning 101 might say this is a high risk portfolio, especially as 20 per cent is allocated to two small-cap funds.

Most people mistake volatility for risk. Sure, small-cap funds are more volatile than ASX 200 funds, but looked at over the long-term — we’re talking 20 years here — they should out-perform large-cap funds. The greater risk is not being in small-caps, given their superior growth prospects.

A financial planner might think having 80 or 90 per cent of your portfolio in just four funds is too risky. But, across those four funds, you probably have underlying holdings in close to 200 companies, with little overlap. That’s more than enough diversification.

Cash (10 or 20% allocation)

10 or 20% – Take your pick, but Citibank has a good suite of products, including an at call online savings account paying around 2 per cent interest.

On a $750,000 SMSF balance, your cash allocation would be $150,000. For retirees, that should be enough for close to three years living expenses.

When and how to re-balance

A financial planner will re-allocate your assets every year. You can do the same, if you like, to keep the overall allocation at roughly 80 per cent shares, 20 per cent cash.

I’d suggest a better option is to change allocation on an “as needed” basis.

For example, if you wanted to buy a new car or go on an overseas holiday, sell down some of your share allocation, or stop re-investing your distributions back into the funds, taking it as cash.

If you need to top up your living expenses, sell down some of your share allocation. Always keep between 12 and 18 months worth of living expenses in cash, or $50,000 to $75,000.

It’s your money

This is DIY financial planning in a nutshell. It’s your money. You are in control.

The costs are transparent — for the small cap funds, read the PDS, but know and expect to pay a hefty performance fee should they out-perform. But those fees will be nothing compared to what you could be paying to your financial planner.

Here’s to living financially happily ever after… 

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Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at