The Investment Process - The Building Blocks of Investment
Cash Savings and current account balances, savings bonds, premium bonds and other National Saving products, Cash ISAs and any cash you have at home.
Low risk – but your money’s buying power is eroded over time if inflation is higher than the interest rates paid. Cash you put into authorised UK banks or building societies is protected by the Financial Services Compensation Scheme up to £85,000.
Also called bonds. Essentially a loan to a company or government for a fixed period. Gilts (Government bonds), overseas bonds, local authority bonds and corporate bonds (loans to companies). Relatively low and returns predictable if held to maturity, however traded prices can be volatile. Your money’s buying power can still be eroded over time if inflation is higher than the interest rate paid on the bond.
Also known as ‘equities’. A stake in a company. You can hold shares directly or through an investment fund where you pool your money with other people’s, like with a unit trust, OEIC (open-ended investment company) or life fund. Investing in a single company is high risk. Investing in a fund provides more diversification, but risk levels will depend on the type of shares in the fund.
Includes residential or commercial property and buy-to-lets, and investments in property companies or funds. Price can vary and be more volatile than with bonds. Potential for gains but also losses. You might not be able to access your capital quickly if you have invested into property directly. Access to capital might also be restricted through property funds if closed to redemptions, meaning you will not have access until the redemption restriction has been lifted.
There also are a variety of non-mainstream investments for example currency, hedged funds and physical assets such as art and cars. These may be considered as part of a portfolio although only through collective investments
Diversifying
Risk attitude is subjective, and is likely to be influenced by current events or recent experiences. When stock markets are rising we tend to feel comfortable with market risk, when they are falling we do not.
Most people are not comfortable with the idea of losing money. On the other hand, we might regret it if we’ve been very cautious and our long-term investments don’t produce the returns we need. You can keep risks in line with your risk appetite by spreading your money across a range of different investments.
A good way to manage risk is to spread your money across different asset classes and individual assets. This is known as Diversifying.
Collective Investments
If you bought shares in one company, property or bond, institutional risk might be a danger. This is the chance of an investment failing with the loss of your capital.
Collective investments are those where a large number of Clients “pool” their assets to spread the risk across a large number of assets, possibly as many as 70 or 80. These individual funds have an investment mandate which includes a wide choice of objectives, for example UK Equities, Global Bonds, and so on. Our Model Portfolios contain around 20 or so of these collective investments to further diversify risk.
We will only consider collective investments when advising you. You can hold individual shares within your portfolio, although if you do require advice in this area, we can make the appropriate arrangements for you through one of our partner companies.
Consolidation of Assets
With years of experience dealing with financial products, we have found that many Clients have financial products that, although suitable when they were arranged in their day, are no longer fit for purpose in the modern world of finance. Problems might include a lack of investment choice, or the inability to offer the options in Retirement Planning that recent pensions freedoms legislation was designed to promote.
We have undertaken several consolidation exercises over recent years, transferring Clients’ hard-earned money in old-style contracts onto more modern investment platforms. This can be very time -consuming for a Client to undertake, and the research needs to be thorough to ensure that financial penalties or benefits do not disadvantage you.
Once completed, we will undertake a full review of your Investment Strategy to ensure that your investments are aligned to your Goals and Risk Appetite.
Investment Strategy
These are funds managed by a single fund manager who invests a range of other funds. He will have an investment mandate as with individual fund managers, and seeks the best of breed from a limited number of funds, buying those funds in proportion to achieve his targets.
We offer a range of portfolios comprising around 20 or so collective investments to suit your Risk Profile and circumstances.
Each portfolio will carry a mix of the building blocks of investment according to its Risk Profile. This may be changed from time to time to reflect market conditions, though we will never try to “time” the market ourselves. Our view is that this is best left to the experts, the fund managers themselves.
The underlying assets are reviewed on a quarterly basis, and may be changed if they do not meet our stringent criteria.
A more tailored approach may be required to include more aggressive management of assets including use of alternative investments and market timing strategies. In this scenario, we would refer you to one of our partner firms to a more bespoke service.