Veteran WA stockbroker Heather Zampatti’s nine lessons for successful investing

Heather Zampatti just left the stockbroking industry after four decades of guiding investors through share booms and crashes, record low interest rates and shock mortgage hikes, and a variety of global crises. The science and education graduate retired from broking last month after 21 years as Bell Potter’s head of wealth management and stints on the Takeovers Panel and boards of Lotterywest and WA Ballet. Ms Zampatti is now focused on her corporate and not-for-profit roles, which currently include the committee overseeing Edith Cowan University and the WA Academy of Performing Arts setting up in Perth’s CBD. She retains a keen interest in ensuring that Australians understand the joys and pitfalls of investing for a healthy retirement. With major indices set to challenge records set in the rallies of 2021, it is again danger time for people who do not have a disciplined investment approach. Here are nine of her key investing insights based on a lifetime of experience. A MODERN QUANDARY The conventional wisdom last century was that a young adult could buy their own home not long after starting work. Nowadays many people are not settling down until their well into their 30s. A young adult planning a decade or more of travel and work freedom should be building a healthy nest-egg from the start of their working life. This may well be through extra super contributions, or it could be through disciplined regular savings and investment. KEEP IT SIMPLE Personal investing should be simple and in basically three areas: bank accounts, property and shares. Your risk profile or tolerance and timeframe are key considerations when you look at what percentage should be invested in each of these three areas. If your timeframe is less than five years, you should look to stay in cash and term deposits. Over time property and shares have outperformed cash, but it’s not in a straight line. RISK IN ‘NO RISK’ There is an inherent risk in just leaving your money in bank deposits and trying to remember to seek the best interest rates on offer. The risk is that inflation will erode the real purchasing power of your savings. Australia’s banks do not consistently produce healthy profits for their shareholders by overly-rewarding depositors. By the time the next big downturn in bank shares comes, that $10,000 you left in term deposits and access accounts could well only have $9000 of purchasing power. MANAGED FUNDS GOOD START There are big inherent risks in being overly concentrated in your investments, particularly when starting out in the share market. Managed funds can be a good way of mitigating the risks by giving you a more diversified spread of investments. As you build up your available funds for investments, you can look at adding individual stocks to your portfolio. Managed funds can also give you access to domestically diversified property portfolios. HEALTHY DIVERSIFICATION Investment theory suggest shares in around 15 companies is needed to diversify risk. This should be shares in both different companies and different sectors of the economy. The spread is important because they perform differently at different stages of the economic cycle. A well-diversified portfolio may have one or two banks, one or two resource companies. You might also include infrastructure companies like telecommunications and toll road providers. The mix can be boosted by retailers from staples in food and groceries to discretionary retail, like clothes and furniture. Then there are property companies in industrial property, retail shops and residential. SPECULATING AIN’T INVESTING Speculating should only be with the hard earnt money you have that you don’t mind losing. For me and most people I have discussed this question with, the amount is not much. Think carefully before taking a speculative bet on a company eventually doing well. You should determine how much, or what percentage of your overall investing capital, you want to use and are prepared to lose on the bet. QUALITY AND TIME Invest in solid companies with sound management, consistent earnings and stable dividend income. You make money from mature companies such as the major banks, infrastructure companies and resources players not only through the share price going up over time. The dividends and other income streams also form an important part of the returns, particularly for the top Australian companies. DIVIDEND BUFFER Many high-quality Australian companies focus on providing consistent dividend payments to investors. The percentage of profit that is returned to shareholders through dividends is called the pay-out ratio. Mature and resilient Australian companies, including the big banks, consistently have pay-out ratios of 50-70 per cent. Holding back some of their profits in good times gives them a buffer when they hit tough conditions. This allows them to crank-up their pay-out ratios during the inevitable downturns every business face. HANG ONTO YOUR HATS Don’t panic and sell good shares in tough times, unless something has changed with the company. So many people have lost money selling good companies when markets are falling — and then buying at the top of expensive markets due to the fear of missing out. Try being counter intuitive. Falling markets present great opportunities to buy more shares in good companies. Quality companies bounce back, usually first, as seasoned investors take advantage of sound investments at lower prices.