News/Events

For best results, don't put all your eggs in one basket [24th September 07]

Due to the current stock market volatility, I would like my investments to be checked to ensure I am not exposed to too much risk. What should my financial adviser do to ensure I am investing in the right investments to match my needs?

This is a question I am being asked most days. In today’s market it is even more important than ever for a financial adviser to have a clear strategy. The performance of an investment portfolio is determined by a combination of;

• The mix of asset classes - There are four main areas with these being cash, fixed interest, commercial property and equities.
• The choice of Investments within an asset class - Which funds or companies to invest in.
• Timing  - When the particular investment is bought or sold.

It is fair to say that no one can predict the future on a consistent basis so you should aim to position your portfolio so that no matter what the outcome, your finances have the best opportunity to meet your financial objectives. There is a quote by J K Galbraith, “We have two classes of forecasters; those who don’t know - and those who don’t know they don’t know”.

When a financial adviser constructs an investment portfolio it is essential that their client understands risk and this is in many respects is subjective as this can change dependent on upon how well their investments are performing.

Clearly it is a question of not “placing all your eggs in one basket” and spreading your investment portfolio across the four asset classes mentioned above.

If you are risk averse, put your money in a Building society and look for the highest possible rate of interest available – currently some are very attractive.

However, if you are more adventurous then allocate more of your capital to other areas such as equity markets and then the more risk you are prepared to take you can look at areas such as smaller companies, emerging markets, commodities etc.

Reviewing a basket of investments is particularly important as they may have been collected in a non-structured basis e.g. how often have you brought an ISA at the end of the tax year for the sake of maximising your tax efficient allowance? Did this investment form an integral part of your appropriate investment strategy?

It is of course, important the Financial Adviser ensures their clients maximise these tax efficient opportunities that are available as there are fewer opportunities around to shelter investments from tax as successive Chancellors have tightened legislation.

So, a combination of tax efficient plans with a proper asset allocation which is reviewed on a regular basis is the ideal scenario to protect wealth from tax while ensuring growth and income are at your required level. Always remember the importance of knowing how much you are prepared to lose when making the investment in the first place. Here, and how many times have you heard ‘past performance is no guarantee to the future’ and ‘any investment can go down as well as up’.

Do take a long term view and appreciate there will be hic-cups in world markets every now and again but your financial goals can be achieved by taking regular advice from a qualified financial adviser.

This article was written by Langtons - Published in the Western Morning News, This is Money, 24th September 2007