We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

Safe investments!!!!!!!!!

Options
135

Comments

  • Pobby
    Pobby Posts: 5,438 Forumite
    Once again,many thanks to all who have posted.
  • dunstonh
    dunstonh Posts: 119,641 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    when you decide on the appropriate risk for the client, do you mostly take into account the psychological tolerance of the client? ("how you would react to that position").
    Thats part of it. i.e. if you take the amount you invest, how much would you tolerate as a loss before you change the investment. etc etc.
    If so, then surely if you told all the clients that if they chose the "adventurous" type, and stuck to it for at least 10 years, then they would get the most reward?
    Portfolios rarely work that way.
    So therefore everyone would be choosing the riskiest profile? (and try to ignore the high volatility in the meantime - if, after 10 years, the reward for taking on higher risk is almost guaranteed, then shouldn´t it be possible to overcome the anxieties from these capital fluctuations?)
    Japan in the past, America in the last few years, Tech stocks in the late 90s..... risk is no guarantee of higher returns.
    I presume there must be more subtle elements involved when it comes to risk assessments (something that none of the calculators could tell you, but possibly only a good IFA), like individual financial needs, tax circumstances and other things I can´t think of at the moment... would be intresting to hear comments.
    Tax, personal circumstances including asset position and liabilities, length of time, potential assessibility all have an impact on these the decisions.
    Also I can imagine that most people cannot possibly know how they would tolerate the volatility psychologically until it actually starts being volatile! (then they panic and think they made the wrong financial decision etc, take out the money - usually at the worst possible moment, when the market bottoms - and loose out on the rebound). How can one then make a reasonable assessment then? people´s reactions are as unpredictable as the market
    That is why the questions put them in that position and make them think about what they would do.
    PS: I am not sure we are all talking about the same kind of "risk" here. Trackers and with profits are risky because they are, excuse me, crappy investments.
    Neither of those are crappy when used in the right circumstances. However, its the over use that both have had or continue to have which is the problem. A with profits fund with NU or Pru when combined with certain goals can be a very good choice of fund. A tracker can form part of a diversified portfolio and be equally, if not better than picking a managed fund in that same sector.
    But having a larger proportion of your assets in emerging markets/more focused sectors gives you more volatility (hence they are much "riskier") but in the longrun should provide better return... Am I missing something?
    See above for examples of when it doesnt work that way.

    The tool I use gets quarterly updates from watson wyatt and the asset allocation alters depending on market conditions. So the asset allocation is never static. Also, it assumes annual rebalancing and even a high risk portfolio will have fixed interest and property in it to hedge against some of the riskiest funds. If you dont use the safer funds to rebalance the gains in the higher risk funds, then any gain you make over the years could easily be wiped out.

    A portfolio of 50% lower risk and 50% higher risk could look like 30% lower risk and 70% higher risk after 5 years. So what started as a low/medium risk portfolio has turned into a medium high risk. It has become more volatile rather than remaining within the risk profile. This is why the low risk areas are still needed when using rebalancing. It's also what FoFs do so well by making sure the risk profile doesnt move away from what was chosen at the start.

    If you want to see the risk profiler I use, I will happily email it to you so you can see it first hand.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    The FSA issued a briefing about risk and refused to indicate what they consider as appropriate and left it in the hands of advisers to decide (typical FSA approach. Give no guidence to advisers and wait until they decide someone has done something wrong and then make an example of them leaving all the others to quickly change the way they do things).


    I take your point about this.You're not the first person in the financial industry I've heard complaining that the FSA deliberately leaves things vague and then cracks down on anyone who inadvertently makes what later is seen as a wrong move - some people even see it as a form of "entrapment", (which may be a bit extreme.)

    Actually IMHO the US calculator - issued by the Securities & Exchange Commission (FSA equivalent) how could anyone complain? - just needs a bit more expansion at the bottom end, in particular to include property funds ( not municipals which don't apply.)In the US the equivalent of property funds are REITS, which fall under the equities category.

    But it seems to me that it gives a fairly reasonable picture that most people feel comfortable with, and at least it's a starting point to get people to think in the right kind of way.

    Regarding definition of "risk" what I'm talking about really is "volatility",the fact that share prices wobble up and down.This is what most people think about when they talk about risk.

    There are a lot of other risks (eg the effect of inflation on cash), which tends to mean that it's risky long term to keep very large chunks of your assets in cash or products like level annuities.But in order for people to get the right balance IMHO they need to understand how to reduce the affect of volatility in the first place on their overall portfolio. Then they can gradually increase the percentage of risky assets as they see how it works until they reach the right comfort level.
    Trying to keep it simple...;)
  • Milarky
    Milarky Posts: 6,356 Forumite
    Part of the Furniture 1,000 Posts Photogenic
    People don't mention this much but what is wrong with just selecting an investment (I suppose I'm talking 'managed' funds here?) and then just vesting into it at regular interevals (eg monthly) from your money pot over a number of years (eg 5). This spreads out the risk (by 'pound costing averaging) by using the time factor to your advantage. Yes you 'lose' relative performance where your fund does well because you aren't fully invested from 'day one' but should the investment suffer a relapse this is balanced by the money you still hold. Even if you don't go along with that idea and wish to invest a 'lump sum' for a number of years you could still take twelve months to vest it could you not? (I suspect this is what IFAs do for their clients anyway)

    And would you want to see a return of income (eg dividends) and capital or capital growth only - and do you have a use for your lump investment at a later date? If the former then it matters less if the 'shares' fall intermitently - because from the 'income stream' angle you are much less affected.
    .....under construction.... COVID is a [discontinued] scam
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    A portfolio of 50% lower risk and 50% higher risk could look like 30% lower risk and 70% higher risk after 5 years. So what started as a low/medium risk portfolio has turned into a medium high risk. It has become more volatile rather than remaining within the risk profile. This is why the low risk areas are still needed when using rebalancing.

    I am not sure about "rebalancing" .It could easily be used as an excuse for churning the portfolio so as to impose additional charges. BTW investors should not leave their portfolio unmonitored for 5 years IMHO.

    Milarkey's approach can be used to "rebalance". Check out the portfolio at the end of each year and if your risk percentages are out of line, divert new contributions from the one that is too big to the one that is too small.

    Unfortunately the kind of generic managed funds that people used to be put into have tended to be a) poorly run with high charges and b) too risky for most people's profile.
    Trying to keep it simple...;)
  • margaretclare
    margaretclare Posts: 10,789 Forumite
    Milarky wrote:
    People don't mention this much but what is wrong with just selecting an investment (I suppose I'm talking 'managed' funds here?) and then just vesting into it at regular intervals (eg monthly) from your money pot over a number of years (eg 5). This spreads out the risk (by 'pound costing averging) by using the time factor to your advantage. Yes you 'lose' relative perfromance where your fund does well because you aren't fully invested from 'day one' but should the investment suffer a relapse this is balanced by the money you still hold. Even if you don't go along with that idea and wish to invest a 'lump sum' for a number of years you could still take twelve months to vest it could you not? (I suspect this is what IFAs do for their clients anyway)

    Well, this is exactly what I'm doing with my equity ISA - it gets £200 a month on the 'drip-feed' principle. I selected a couple of funds, again on 'ethical' principles. EdInvestor mentioned them some while ago - Standard Life UK Ethical Fund and F&C Stewardship Income, they looked good, I read up about them and I decided to give them a go. They're managed funds in that they have a manager, but I decide how much to invest in them each month and I can change them if I don't like their performance.

    The 'money pot' they're coming from is my monthly pensions income!!!

    Margaret Clare
    [FONT=Times New Roman, serif]Æ[/FONT]r ic wisdom funde, [FONT=Times New Roman, serif]æ[/FONT]r wear[FONT=Times New Roman, serif]ð[/FONT] ic eald.
    Before I found wisdom, I became old.
  • moneytroll
    moneytroll Posts: 235 Forumite
    Part of the Furniture 100 Posts Name Dropper Combo Breaker
    Many thanks for taking your time to reply, Dunston. It also shows that a good-quality IFA can sometimes be irreplaceable when it comes to investment decisions/portfolio maintenance etc. For average people who don´t know much about investments, it is sometimes not easy to see how important the role of an IFA can be when it comes to risk assessments. These forums did change my views to some degree, I have to admit.
    Could you pm me the profiler if it´s not too much trouble? I am intrigued to see it.
    Also thanks Ed for your contributions too.
  • moneytroll
    moneytroll Posts: 235 Forumite
    Part of the Furniture 100 Posts Name Dropper Combo Breaker
    "People don't mention this much but what is wrong with just selecting an investment (I suppose I'm talking 'managed' funds here?) and then just vesting into it at regular interevals (eg monthly) from your money pot over a number of years (eg 5)."

    Would this strategy be better than investing small-ish lump sums on relatively substential market dips? (Of course it is impossible to time the market precisely, but when market dips, there should theoretically be better prospects. But that may require a bit more "monitoring" and comes uncomfortably close to "market timing".)
  • dunstonh
    dunstonh Posts: 119,641 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    In the US the equivalent of property funds are REITS, which fall under the equities category.
    I would disagree with that. REITs available in the UK (global property) are high risk whereas bricks and mortar property funds are low risk. I would place REIT funds as global specialist and that doest appear in that risk profiler.
    I am not sure about "rebalancing" .It could easily be used as an excuse for churning the portfolio so as to impose additional charges. BTW investors should not leave their portfolio unmonitored for 5 years IMHO.
    That assumes that there are charges for rebalancing. Some of the fund supermarkets and most bond providers make no charge for switching. If you are likely to switch, then that option becomes part of your research.
    Would this strategy be better than investing small-ish lump sums on relatively substential market dips? (Of course it is impossible to time the market precisely, but when market dips, there should theoretically be better prospects. But that may require a bit more "monitoring" and comes uncomfortably close to "market timing".)
    Phased investment or pound cost averaging as it is often referred to can be beneficial in volatile markets. However its a case of spreading the risk and being more cautious. Say you invest £833.33 pm for 12 months (making 10k total) if the markets decline in that period of 12 months, then you would have been better off than investing £10k up front. However, if the markets grow in that period, you would have been better off investing up front.

    Some of the fund supermarkets do allow phased investing.

    Most of the experienced investors here all have views which differ slightly but the basics are much the same. Investments are usually about opinions and views which will differ. It also has to do with where they choose to invest and whom they do it through.

    For example, my comments about rebalancing caused Ed to mention increased costs. However, I wouldn't use a provider/fund supermarket that charged for switching. So whilst switching charges may be a concern for someone that doesn't use a provider that does free switches, it is not a concern for a provider that does do free switching.

    If you are likely to be a frequent switcher, then you have free switches as a priority on your research. If you are unlikely to make many switches, then this wont be a priority point on your research.
    Could you pm me the profiler if it´s not too much trouble? I am intrigued to see it.

    Its an adobe pdf document so I cannot PM you with it. PM me with your email address and I will email the pdf attachment back to you.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    ....In the US the equivalent of property funds are REITS, which fall under the equities category.
    I would disagree with that. REITs available in the UK (global property) are high risk whereas bricks and mortar property funds are low risk. I would place REIT funds as global specialist and that doest appear in that risk profiler

    You misunderstand me.We don't yet have local REITS in the UK. Local REITS in the US are included in the equities category on the calculator.

    Our existing traditional UK property funds are lower risk than US REITS and seem likely also to be lower risk than UK REITS when we get them, largely because the REITS will be liquid - ie can be bought and sold like shares, rather than like funds.

    Care needs to be taken at present over choice of property fund as the REITS issue is introducing a new higher risk class of property funds which can catch people unawares.
    Trying to keep it simple...;)
This discussion has been closed.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350.9K Banking & Borrowing
  • 253.1K Reduce Debt & Boost Income
  • 453.5K Spending & Discounts
  • 243.9K Work, Benefits & Business
  • 598.8K Mortgages, Homes & Bills
  • 176.9K Life & Family
  • 257.2K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.