News/Events

Investors should think long term [11th April 08]

It is fair to say that with my current view, meetings with my clients are not easy and, in many cases, can be extremely difficult. I have never shied away from having a face to face discussion with a client when investment markets have been indifferent and their portfolio valuation has fallen. I have always felt it is best to be honest at the beginning and spell out the downsides and then explain exactly the reason behind the falls if they occur. But, Investors must take a long term view and not short because as long as the right investments have been chosen in the first place, they will come good eventually.

There are good times and bad times and even if the portfolio is well spread between a number of top performing funds then they don’t become poor funds overnight.

I saw a client the other day that was quite disgruntled with the 10% reduction in his portfolio over the last 4 months – yes I went to see him just before Christmas – and he felt I should make changes to the unit trusts held within his ISAs savings account. In his eyes he had made a £5000 loss and wanted to improve the future prospects by selling some funds and re-investing into others that would do better.

Then, I had a prospective new client on the telephone who had invested £100,000 a year ago and it was worth only £90,000 now. The lady said “the news is so full of doom and gloom about the economy and house prices so wouldn’t it be better in cash?”

My first piece in these instances is “DON’T PANIC” and although cash is not a bad place at present, interest rates could fall during the next year which would make cash look much less attractive. 

Perhaps both investors should go back to basics and ask themselves a few pertinent questions about their portfolios and why they are investing.

Is it for growth or income or indeed a combination of the two?

Do they have a cash reserve so that some money can be produced in an emergency without having to encash their investments?

What is their attitude to risk and volatility? It must be remembered that with risk comes reward and the main need is to ensure that there is the right balance between the two.

Our job as the IFA is to design a portfolio that will match our client’s attitude towards investment risk and reward. In a lot of cases, this will probably consist of cash, fixed interest, property and equity based investments. Managing money is like making a journey in a car as, firstly, a destination is chosen e.g. retirement, age 50 etc, and then you want to get there safely and at a comfortable pace whilst having the odd service to check everything is in order.

There will be times along the way when capital values go down – we have seen recently the FTSE 100 go up 200 points one day and down 150 the next – and commercial property has seen at least a 10% correction. Fixed interest and bonds have faired only a little better with returns either just positive or slightly negative.

Make sure you have a smooth trip by having a regular M.O.T of your investments with a qualified IFA as a little tinkering maybe necessary to keep going on track. Now is the ideal time with the beginning of the new tax year.

This article was written by Langtons - Published in the Western Morning News, Money, 11th April 2008