Autumn Winter 2016

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AUTUMN/WINTER 2016 AUTUMN/WINTER 2016
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Don’t put all your investments
in one basket
In light of the recent European Union referendum decision, and
how the uncertainty surrounding the United Kingdom’s exit
from the Eurozone impacts personal and corporate spending
decisions, and the world economy in general, the immediate
impact on a personal level may focus on how our pension or
Individual Savings Account (ISA) funds may be a ected in the
short, medium and long term.
With all the media outlets focusing
on global stock market turmoil and
billions being wiped out overnight on
some days, suddenly our own savings
and retirement plans come under
scrutiny. For many it is a rush to the
filing cabinet or to log online to see
how much we have each lost.
“...what has stood the test of
time for potential investors is
the old adage of ‘don’t keep
all your eggs in one basket’...”
Amongst all the jargon, waffle and
potentially complicated world of
investment theory and principles, what
has stood the test of time for potential
investors is the old adage of ‘don’t put
all your eggs in one basket’.
In the investment world, the ‘eggs’
relate to the different asset types that
are available for us all to invest in using
our pensions or ISAs, such as cash,
shares, property and fixed interest
securities. It is how each of these
asset classes perform differently to
each other and what percentages we
invest in each of them that determines
how your portfolio may be affected by
major events such as Brexit.
At David Allen Financial Services
we recognise that every investor is
different, with varying ambitions,
attitude to risk, and time available for
their investment to grow. Below we
give a few examples of how we can
help protect your investments.
Correlation
While it is impossible to predict
exactly how an investment will
perform, dependent on a client’s
attitude to risk, by putting together a
portfolio which is made up of various
asset types that react differently
during different market events, it is
possible to create a predicted range
of returns or losses to manage a
client’s expectations as to what they
may get back from their investment.
Correlation is defined as the mutual
relationship or connection between
two or more things and it can be
assessed as being either negative
or positive. One simple example
of negative correlation would be
that when the weather is wet ice
cream sales will fall, while a positive
correlation with wet weather would be
that umbrella or rain jacket sales will
increase.
When investment portfolios are
constructed, the correlation of
the different components is very
important in determining how during
different market events, they will be
affected. For example if share markets
plummet, fixed interest values tend to
go up.
Likewise, when interest rates go up,
fixed interest values go down. So
when creating a bespoke client
investment portfolio, it is very
important to use various components
that have both negative and positive
correlations with each other. This
not only helps manage risk but also
provides some idea of the predicted
returns/losses that may occur during
different market events.
Pound cost averaging
For those investors who are either more cautious about
investment during periods of uncertainty or simply don’t
have lump sums to invest, another alternative is to save on
a regular basis into markets and take advantage of what is
sometimes known as ‘pound cost averaging’.
One of the biggest dilemmas investors face is market
timing. Jumping in and out of markets on a regular basis
not only requires constant monitoring of daily events but
also requires the skill to act on such events. Even the best
fund managers avoid trying to catch the top or bottom of
a market. The message here is that it’s impossible to time
markets perfectly, so it’s best not to even attempt it!
Pound cost averaging is a technique that reduces exposure
to falling markets from investing a lump sum.
By investing at regular intervals more shares are purchased
when share prices are low and fewer shares are purchased
when prices are high. So the investor will be better off in
falling markets but worse off in rising markets. However, it
does avoid the need to try and second-guess markets.
Although not a definitive list to reducing risk, the options
here highlight the different discussions our advisers at
David Allen Financial Services have with our clients, aimed
at giving you the best, independent, impartial advice to
build long lasting relationships.
You may have the experience and knowledge to look
after your own investments based on some of the steps
highlighted here. However, it’s likely you still would benefit
from us structuring some tailored investment solutions
together for you.
Call Steve on 01228 711881 to
arrange your FREE financial review.
Steve Balmer
Independent Financial Adviser
Whatever your circumstances, as
a new or experienced investor, we
are here to help. Give us a call on
01228 711881 to benefit from
our FREE review service – it could
be the best investment you make!
I had met several financial advisers
prior to meeting Steve, however after
meeting him I felt totally comfortable
in trusting him with what was a very big
decision for me... Helen James
Steve always listens to our thoughts
and aspirations in a sensitive and
tactful manner, and with his in depth
knowledge pulls together clear and
valuable solutions...
Paul and Ann Barker Howard
The value of investments and the income from them can fall as well as rise and past performance is not a guide to future
performance. You may get back less than you invested as investment returns are not guaranteed. Different types of
investment carry different levels of risk and may not be suitable for all investors.