Managing your investments
If you are thinking about investing your hard-earned money, the first question to ask yourself is: “Do I really want to do this myself – do I have the time, the knowledge and the expertise – or, is it so important that I should let an expert do it for me?”
The first decision
This first decision is an important one. If you decide to do it yourself, the probability is that you may spend a lot of time and make very little profit: it’s very unlikely you’ll be as successful as a professional investment adviser. Engaging a professional adviser frees you from a lot of work; buys you access to the experience and knowledge the adviser, and possibly their firm, has gained from their time in the investment market; ensures your capital is placed with best-value providers and is expertly managed and that any profits you may make are tax efficiently managed.
Answering the question does mean being totally honest with yourself. You should think carefully about exactly ‘why’ you are considering investments, think through the various pros and cons and weigh up their implications, both now and in the future. “Why am I investing my money?” “What do I expect to get out of it?” “Do I have the time to do it?” may sound very basic questions but, providing you are honest with yourself, the answers will point you in the best direction.
It may be that you’ve a couple of thousand pounds’ worth of shares you’ve received from your employer, you’ve inherited or bought with a lottery win, bonus or unexpected windfall – and you just fancy dabbling in the stock market. On the other hand, it may be much more serious. Perhaps you’re due to receive your pension and feel that investing your pension pot and then actively managing the investments might provide a better income than an annuity could. If it’s the first reason then you’re really looking at investment as a hobby and, providing you can afford to risk losing your investment, it shouldn’t take too much of your time. If it’s to provide income throughout your retirement then you’re starting to play with your future – every penny may count so you have to ensure that the money you invest gives you the best possible return.
‘Making lots and lots of money!’ is far too simple an answer as, invariably, to make a lot you’ll need to either invest a lot or invest in high-risk opportunities – or both. Investment is also a long-term venture and markets can be volatile. It may be exciting when you start but, in a couple of years’ time when the novelty has worn off, the markets seem stable and monitoring your portfolio has become a bit of a chore, it can be all too easy to take your eye off the ball – with potentially catastrophic results.
If you decide to go down the DIY route then you’re on your own: you’ll have to do your own research, make your own decisions, find your own contacts, monitor your investments and manage them accordingly. However, if you are anything more than just a ‘casual investor’, then investment is really best handled by a professional. Yes, there will be a cost – but keep in mind that you’re actually buying a service, a service that brings you all the experience and knowledge your adviser has gained from working professionally within the markets along with the facilities they have that allows them to efficiently monitor and manage your investment.
Should you decide that too much is at stake, that investing your money is really too important to play about with, and that you want a professional adviser to work with, then take your time to find the right one – you’re entering into a long-term relationship and you need to have total confidence in who you engage.
Managing your investment
No matter whether you decide to do it yourself or use a professional adviser, there’s very little difference in ‘how’ you manage the investment process, the portfolio created and the short, medium and long-term outcomes – here are a few things that either you, or you and your adviser, need to address.
- One of the first tasks is to accurately identify both your ‘attitude to investment risk’ and your ‘capacity for loss’ as these play a fundamental part in your investment strategy. An adviser will ask you to complete a simple, yet surprisingly accurate, psychometric risk assessment and, combining the objective result of the test with their subjective feeling about you – feelings gained from their conversations with you about what you want to achieve – will categorise your risk profile. This process is so important that, for an adviser, it’s a statutory requirement.
- At the same time, you should try to accurately establish both the potential level of return you need and when you need it. Using these as targets and your attitude to risk profile to guide you, you, or your adviser, can then plan an investment strategy: how much you can afford to invest; the most appropriate investment opportunities; the balance of your portfolio; the timings and time periods; the best ways to monitor, measure and manage your portfolio and, hopefully, how to access and manage any profits you may make.
- Remember that the best way of mitigating investment risk is to diversify and build a diverse portfolio. Dependant on the amount of capital you have, your adviser will recommend a portfolio of investments across a variety of asset classes: some may be relatively low-risk investments that bring a steady, but low return; others may be medium-risk opportunities and they may also suggest a small, high-risk investment that could return a good profit quite quickly. ‘Correlation’ needs to be considered as it may help iron out the inevitable peaks and troughs.
- If you’re investing in an investment fund you’ll need to decide whether to go down the ‘actively managed’ or the ‘passively managed’ route: the former will be more expensive but a dedicated fund manager may be worth the additional cost.
- Hopefully, your investments will make a profit – so you’ll need to ensure that your profits are handled in a tax-efficient way, either by putting the investments into a suitable tax wrapper, an ISA or pension being two options.
- Once started, your portfolio and the individual investments within it will need constant monitoring. Markets can be volatile, some more so than others, so your team – you, your advisers and any fund managers involved – need to remain vigilant, ‘on the ball’, identifying and accurately assessing those factors that could influence movements within the market and which may affect your investments and, if necessary, then taking appropriate action.
- Your investment needs to be measured. If you’ve an investment fund, how is it performing against its stated benchmark? What are your investments’ ROIs? How does the performance of the individual investments in your portfolio compare with other, similar investments? Is the performance of your portfolio achieving the objectives set by your overall investment strategy?
- Apart from day-to-day monitoring, it’s wise to thoroughly review both your investment objectives and your portfolio periodically, adjusting your investment strategy accordingly. Have your objectives changed? Is the portfolio meeting your objectives? How is your portfolio and its individual investments expected to perform in the future? Are you getting value for money? Have any of your investments ‘drifted’ and, if they have, are they, and your portfolio, still within your chosen attitude to risk profile? Does your portfolio need to be rebalanced? Has there been any major changes to the structure of your investments and how they’re run (for example, has a successful fund manager left and, if so, what are the likely consequences)? Have you used all of your annual tax allowances for the year, eg: ISA, pension and Capital Gains Tax?
How can One Financial Solutions help you?
“It’s not about timing the market, it’s time IN the market that counts.” is another of Warren Buffet’s legendary quotes. Apart from re-emphasising that investment should be treated as a long-term venture, it also underlines that ‘being in the market’ helps build the all-important store of knowledge and experience you need to be successful – something you can’t pick-up quickly.
One Financial Solutions is here to help you. Our advisers are experts who live and breathe investment – it’s how they make their living. They’ll take time to talk to you about your financial objectives, the level of risk you’re prepared to accept and any investment preferences you may have. They’ll provide expert guidance and, once you’re happy to go ahead, they’ll put everything in place and keep you updated for the duration of your investment.
So, if you’re looking for help with any aspect of investment, please call us on 020 3714 9565 or ask us to call you by sending an email to firstname.lastname@example.org.