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Over my years in finance, I’ve met many clients and seen many investment portfolios. None are identical, but I’ve identified several consistencies among the stronger performers. I’m happy to share these observations for the benefit of anyone starting their investment journey.
1. Using a professional investment manager
While it can be tempting, most people lack the time and expertise to successfully manage their own investments. For example, Investec has a large research team with an average of 20 years’ industry experience, and the resources to constantly monitor market movements and react accordingly. This can be very reassuring in times of uncertainty.
A professional investment manager can design a portfolio of investments tailored to help achieve your personal objective, whether that’s growth, income generation, capital preservation, or a combination of these. As you reach different life stages, your financial goals might change. A good investment manager will get to know you and will update your portfolio to remain in line with your objectives and how comfortable you feel with risk.
As well as a good investment manager, it’s important to have access to an efficient administration team that can speedily and accurately process instructions and information. The administration of financial affairs can become complex so you’ll want to have a team of experts you can rely on.
2. Actively managing risk
As the global economy goes through a period of transformation, with higher inflation and higher interest rates, I believe the ability to actively pick winners and avoid losers is going to become more important than ever. At Investec, all our portfolios are actively managed. This means that we buy and sell assets to keep the investment strategy up to date with constantly evolving markets.
Without active management, it’s easy for a portfolio to become out of date and too focused on a long-expired theme.
Another feature of active management is tax planning. A financial planner can help you to maximise your tax efficiency by using your ISA allowance, capital gains tax allowance and dividends allowance, which can add significant value over the long term.
3. Investing for the long-term
In the short-term, markets are unpredictable, and any individual year can produce returns much better or much worse than average. The longer you can leave your money invested, the more likely it is that the average expected returns will be achieved.
A long-term view allows investors to take advantage of the upward trend in economic growth without being distracted by short-term noise. The longer your time frame, the more likely it is that you will buy low and sell high.
Investing for the long-term also means that you can benefit from compounding: reinvesting growth and income to receive more growth and income. The results of compounding over a decade or more can be astounding.
4. Globally diversifying
Investing for the long-term is only possible if you have the will to remain invested. This is much easier if you feel confident in your portfolio’s resilience to all market conditions. By globally diversifying, i.e. investing in different assets, in different countries and different currencies, you avoid putting all of your eggs in one basket.
The expected result of diversification is a smoothing of the ups and downs of an investment journey. This can help provide peace of mind and help to avoid short-term, emotional decisions that could upset a long-term strategy.