As with any investment, there are a number of questions that should be considered before doing anything. Firstly, how long are you planning to invest for? With any stock market or property investment the timescale is important and, really, should be a minimum of five years.
The next issue to consider is your attitude to risk. If you are cautious, equities may not be the most appropriate place to invest, while if you are willing to be more adventurous, equities may well be a good place even with markets at their current highs. But before doing so, this needs to be reviewed to make sure any investment is suitable to your requirements and that you are comfortable with what you are placing your money into.
For a lot of investors, cash has been king. Even though there is little or no interest to be earned, the security and capital protection that cash can offer is attractive, and can outweigh the lure of growth elsewhere. However, the fact that the cash is not earning any growth means that even with the low inflation conditions that we have experienced for the past few years, the value is being eroded and that process is likely to accelerate.
Equities have generally been the place where investors would look to for increased performance. But this raises the question — which equities should I invest into? This is potentially another minefield, and so often investors utilise a fund. That way they will get their investment spread over a wide range with a professional fund manager selecting the investments and making changes as required.
Attitude to risk
This is a good way to invest, but often funds focus on a particular country or sector. What if you would like to invest in a wider geographical or range of sectors? What if you also want to manage the risk that your investment is exposed to? This is where a multi-manager or a “fund of funds” approach can be useful.
These have a team of professional fund managers who build portfolios to meet clients’ attitude to risk, and then monitor this on a daily basis. The managers can switch in and out of funds, switch sectors as they see fit, and re-allocate into sectors they believe offer better performance, or indeed take profit when they believe it is appropriate. These can also be structured to different risk profiles.
Due to their size, they have access to funds and managers that individual investors often cannot, and so can improve the investment returns without taking any additional risk. They can also provide a monthly market review of what the funds have achieved.
With all investments, they should be thoroughly considered before you commit to placing your money. You should be prepared to accept the falls and well as the rises, and be happy to commit to them for the medium to long term.
The writer is with Acuma, an independent financial advisory.
