Archives For Capital Investment

When an investment is underperforming it is psychologically difficult to take the right course of action. This can be compounded by penalties levied by product providers and potentially paying fees on any new investment you make. So what should you do? This post will help you arrive at the right decision…

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The markets have been very volatile this year and as we approach the UK referendum on EU membership there is likely to be further wobbles in the near future. Consequently, I thought it would be a good time to post a reminder of 7 strategies which have been proven to deliver financial success.

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It seems everywhere I look in the last few weeks I see pictures of stressed traders and a mass of red on trading screens. Newspapers and online headlines read ‘Market Crash’. Naturally, I have received several calls from concerned clients. They want to know: what they should do, how it will affect them, and is the sky falling in on their retirement plans?

First, it is common for these things to happen over the summer months. This is for a number of reasons: low trading volumes result in relatively small trades having a larger than normal impact on the market increasing volatility; the media have little to report (August is known as the ‘Silly Season’ in UK media circles) which means minor stories take centre stage and the same news gets repeated more often resulting in greater impact than normal. And don’t forget Mr. Market from Dr Graham’s famous book on investment ‘The Intelligent Investor’ published more than 50 years ago it is just as relevant now as then. Mr Market completely forgets why he invested in the first place. When he sees markets go down he just follows the herd. Consequently, when markets go down all the Mr. Markets out there make it go down further. For the ‘Intelligent’ investor says Graham this is an opportunity. The Market is offering the ‘Intelligent’ investor an opportunity to buy investments at last year’s prices; an opportunity most would welcome in any buying scenario.

So is the market turbulence all good news? No, of course not. But it must be kept in context. The markets and to a greater extent the media generate a huge amount of ‘white noise’ and it is hard to know what to ignore and what to take seriously. Few private individuals in full time employment have the time and resources to manage their own investment portfolio. Instead they employ a qualified, experienced professional. In conjunction with their investment adviser they put an investment plan in place which is designed to meet their goals within their specific circumstances. These plans tend to be over the very long term perhaps 10 or more years.

Investment advisers are not only useful at the outset of an investor’s financial planning.  Having a third party available helps investors in times of higher than usual market volatility. They help investors remember they are investing for the long term and offer a professional view of the situation. Additionally, when adjustments are needed they are on hand to act as a guide.

Part of any investment plan should be the management of risk. For example, a young person saving for retirement can afford to take greater risk than an older person who has already built up a significant amount of capital and is with a few years of retirement. The degree of risk is reduced as the investor’s goal is approached. This then reduces the impact of market fluctuations such as the one’s we have seen recently.

It is also important to recognise that the media generally focus on just one of the traditional asset classes: equities or shares. Whilst this is an important part of many portfolios, most will also include investment in cash, fixed income and property. These assets react differently to equity markets. This diversification is a fundamental way of reducing risk in a portfolio.

The message is if your portfolio is correctly structured to suit your needs you shouldn’t panic and you should keep focused on the long term. On the other hand, if you are at all concerned about your portfolio you should contact a professional adviser.

As always, if you have any questions or comments please let me know.

Whenever you meet with a financial planner you can expect to be told that you should diversify your investments to reduce risk. But how much diversification should you accept and when does it cease to become a good thing?

First, and from the outset, I am a fan of diversification. It does help reduce risk in all sorts of ways. Whether it is diversification of assets across cash, bonds, property and equities, or across fund managers, investment strategies or currencies – risk is reduced. However, to play devil’s advocate, reduced risk also means reduced potential returns and reduced potential for beating the market.

No one fund will provide you with complete diversification as you will still be subject to the preferences and bias of a fund manager or the company employing the fund manager. The way to reduce this ‘manager’ or ‘house’ risk is to invest in more than one fund. Even funds with the same investment objective can have very different results but you do have to be careful…

If two or more funds are investing in the same areas such as the FTSE-100 or S&P 500 they might often have similar holdings. So by investing in different funds you may not be diversifying your investments by as much as you think and where these funds just track the index returns very similar.

Some funds invest in other funds. These are known as fund of funds. These are super-diversifiers investing in 20 or more underlying funds which are usually accessed on favourable terms. If you have a relatively small amount to invest and you are concerned about diversification, a fund of funds approach may be the answer.

These funds are generally offered in various currencies and are managed within pre-defined risk parameters. Whilst the annual management charges are generally more expensive than buying an individual fund; professional portfolio management, fund research and reduced risk are advantages not provided by individual funds.

So how much diversification is enough? The answer to this question will depend on your thoughts on risk; the amount being invested and what your investment objectives are. An investment professional should discuss these important points with you to ensure that he or she has a good understanding of your needs before making any recommendations.

I hope you found the above useful. If you have any questions please contact me.

Experienced Investor Fund (EIF), Specialist Investor Fund (SIF), Qualified Investor Fund (QIF) are three investment fund categories. There are different definitions for each category depending on the jurisdiction in which the fund has been established. The common denominators are: they are not suitable for retail investors; they have high initial minimum investment amounts (typically more than US$100,000); require a high level of investment expertise or wealth as a pre-requisite for investing.

There are many reasons why an investment company would wish to set up their fund under one of these regimes; for example, they may  specifically target institutional or experienced investors; the investment strategy or asset may not be suited to retail investors. In return, regulation and establishment processes are generally less onerous.

As with any investment, an investor should only invest in something they understand. The best way to determine whether a fund is suitable for you is to read the legal documentation issued by the fund management group. This may be known as the fund prospectus, private placement memorandum (PPM) or fund particulars.

These are not marketing documents. They will not focus on performance. They are intended to set out the charges, investment strategy and potential risks of investing. They also contain additional information which may help you make an informed investment decision such as whether the fund falls into one of these three investment fund categories.

If you are worried about the time spent reading and understanding the prospectus, consider the amount of time it would take you to earn the money you are investing. This should help put the few hours you spend understanding your investments into perspective.

If the fund does fall into the EIF, SIF or QIF categories you should then satisfy yourself that you meet the eligibility criteria. If you do, you should then consider the investment proposal.

If you do not, then you should not proceed and should instead continue your search for a suitable investment no matter how attractive the investment looks. Selecting an investment is a process of matching your needs to suitable investment opportunities which reaches much further than just investment performance.

Last week we looked at what thematic investment is. This week I will show you a cost effective way of managing your portfolio to the theme you have chosen. I have used the example of healthcare but it could easily have been any number of other themes. Continue Reading…

Thematic Investing


I hope you got away from the heat during the Summer and that you have returned refreshed and ready for work. This week I am looking at thematic investment. What it is and examples of popular themes being followed at the moment. Continue Reading…