As the newest of our managed investment portfolios approaches its third birthday, we’re taking a look back at their performance over what is generally perceived to have been a particularly volatile time in the markets.
With little or no real returns available from cash deposits and a FTSE tracker barely scraping into double-digit returns over the same timeframe, the strong performance of our portfolios highlights a wider point – the need for diversification.
So what is diversification? According to Wikipedia “diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk”.
This asset allocation decision is especially important in the management of risk. Diversifying across different assets classes – such as UK shares, foreign shares, fixed-interest securities, property and commodities – can reduce your investment portfolio’s volatility. What is bad news for one asset class might be good news for another. By carefully blending investments in these asset classes, we seek to smooth the overall returns and reduce the likelihood of unwanted, nasty surprises along the way.
While – from time-to-time – this can result in a ‘blended’ portfolio underperforming an investment into just one asset class, no single asset class consistently outperforms all the others and it is practically impossible to predict which asset class will perform well and at which time.
We therefore advocate a blended approach to match an investor’s appetite for risk. Additionally, when providing advice, we not only look at an investor’s comfort-levels for risk, but also their financial means – or capacity – to see out any market volatility.
There are two good examples of this from within the last 12 months: in August 2015 and again in early 2016, the markets ‘lost’ more than 10%. If investors had panicked and sold their investments, or not had the financial means (capacity) to ride-out the volatility, they would not have benefitted from the equally sharp recovery that followed.
Hartsfield Managed Investment Portfolio Service
Why are we proud of the Hartsfield Managed Portfolios? We’re confident that we do a fantastic job of blending asset classes to match our clients’ needs; have a robust, repeatable strategy for selecting the best-performing funds within those asset classes; and, equally importantly, we do a great job of communicating with our clients at all times – not just when markets are up!
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Risk warnings: The information contained in this blog does not constitute an offer of, or an invitation to buy or sell any security and is for information purposes only. Past performance is not a reliable indicator of future results. The value of an investment and any income from it may fall as well as rise, may be affected by exchange rate fluctuations and you may not get back the amount you originally invested. This information is deemed to be reliable however it has not been independently verified.
Categorised in: IFAs
This post was written by Paul Verwoert