IFA and Ethical investment Return

Woolsery

dunstonh said:

They were all IFAs
None of them seem able to protect my funds from inflation by providing a return in excess of 5% after all fees

For example, a medium risk portfolio that has returned in excess of 6% a year over the last 25 years would be down around 10-15% year to date.  

Yup, my 'ethical' fund is down about 14% since last November and I see zero signs that things will improve any time soon; rather the reverse. I spoke to my IFA about minimising risk and maybe hedging via precious metals too in the current financial climate, but he stuck my money in a mid-risk fund and went deaf regarding gold etc....well, he wouldn't gain from that himself, would he?

I was rather green last year, but it's surprising how fast one learns when things turn nasty. Now I'm taking control. I'm probably still somewhat naive, but at least the errors will be mine and I can live with that.

DoneWorking

Albermarle said:

DoneWorking said:

I realise that no IFA can guarantee returns but I was expecting a realistic anticipated return from them

I have emailed them just now regarding this matter

I do not want to appoint an IFA and end up being worse off than if I simply put the funds in various savings options and took the hit on inflation

Do I have any other simpler options or am I between a rock and a hard place

You can save at say 1.5% , capital guaranteed safe .

You can invest in higher risk , 100% equity . Return over short term ( < 5 years ) could be well above inflation or 40% below it
You can invest in medium risk 60/40 type  . Return over short term could be around inflation or 25% below it .

The longer you keep invested the more likely to see a positive return and less likely to see a negative return. After 10 years the odds should have swung heavily in your favour .

What would happen if the fund took a big drop early on

Would it be able to make up this loss over the 10 year time scale you mention

eskbanker

Woolsery said:

dunstonh said:

They were all IFAs
None of them seem able to protect my funds from inflation by providing a return in excess of 5% after all fees

For example, a medium risk portfolio that has returned in excess of 6% a year over the last 25 years would be down around 10-15% year to date.  

Yup, my 'ethical' fund is down about 14% since last November and I see zero signs that things will improve any time soon; rather the reverse. I spoke to my IFA about minimising risk and maybe hedging via precious metals too in the current financial climate, but he stuck my money in a mid-risk fund and went deaf regarding gold etc....well, he wouldn't gain from that himself, would he?

I was rather green last year, but it's surprising how fast one learns when things turn nasty. Now I'm taking control. I'm probably still somewhat naive, but at least the errors will be mine and I can live with that.

Your IFA made no reference to the well-known fact that investments can go down as well as up, and that they shouldn't be judged on short term timescales?

Audaxer

DoneWorking said:

Albermarle said:

DoneWorking said:

I realise that no IFA can guarantee returns but I was expecting a realistic anticipated return from them

I have emailed them just now regarding this matter

I do not want to appoint an IFA and end up being worse off than if I simply put the funds in various savings options and took the hit on inflation

Do I have any other simpler options or am I between a rock and a hard place

You can save at say 1.5% , capital guaranteed safe .

You can invest in higher risk , 100% equity . Return over short term ( < 5 years ) could be well above inflation or 40% below it
You can invest in medium risk 60/40 type  . Return over short term could be around inflation or 25% below it .

The longer you keep invested the more likely to see a positive return and less likely to see a negative return. After 10 years the odds should have swung heavily in your favour .

What would happen if the fund took a big drop early on

Would it be able to make up this loss over the 10 year time scale you mention

I would certainly hope that a well diversified medium risk multi asset fund would recover from an equity crash within a few years at most. VLS60, a medium risk multi asset fund recovered it's losses from the March 2020 Covid crash after a few months, but that was particularly quick compared to previous equity crashes.

Malthusian

The most important factor that determines your invsetment return, and whether you do better than inflation (and cash) after accounting for fees, is how long you leave the money invested.

If you could guarantee to an IFA that you wouldn't cash in the investment until it had beaten inflation the IFA could guarantee you would beat inflation. As you can't (it's not legally possible), they can't.

I realise that no IFA can guarantee returns but I was expecting a realistic anticipated return from them

If anyone told you 5 years ago that CPI inflation would be 5.5% in 5 years' time, you would have thought they were cracked.

Nobody can anticipate future returns because nobody can anticipate future economic events.

Albermarle

I spoke to my IFA about minimising risk and maybe hedging via precious metals too in the current financial climate, but he stuck my money in a mid-risk fund and went deaf regarding gold etc....well, he wouldn't gain from that himself, would he?

Presumably if the IFA had diverted some funds to 'gold' it would not have been physical metal, but an ETF following the gold price . In which case their ongoing % fee would still have applied.

If your relationship with your IFA is poor ,which it sounds like , then  you should consider a change.

Thrugelmir

DoneWorking said:

dunstonh said:

Every IFA should be able to cater for your needs.  If they cannot then it means they are not an IFA.   Are you sure you have been contacting IFAs and not FAs?  (FAs and Wealth managers are less likely to be able to meet specific ethical requirements.  Although they could have a more general ESG offering).

None of them seem able to protect my funds from inflation by providing a return in excess of 5% after all fees

And I doubt you ever will. As it's well above anything achieved in the past on record. ESG may well come at the expense of overall returns as well. 

Woolsery

Albermarle said:

I spoke to my IFA about minimising risk and maybe hedging via precious metals too in the current financial climate, but he stuck my money in a mid-risk fund and went deaf regarding gold etc....well, he wouldn't gain from that himself, would he?

Presumably if the IFA had diverted some funds to 'gold' it would not have been physical metal, but an ETF following the gold price . In which case their ongoing % fee would still have applied.

If your relationship with your IFA is poor ,which it sounds like , then  you should consider a change.

We didn't get as far as deciding between physical or paper metal. It was just, "Yes, you could do that."

Between choosing him and setting things in motion I had a change of opinion and asked him to reflect that in his final recommendation, but I found he didn't. He came across as a 'Yes' man who would nod earnestly to anything one said. He was almost the only IFA who replied to me though; the others obviously thinking £40k a rather trifling amount to bother themselves with!

dunstonh

Between choosing him and setting things in motion I had a change of opinion and asked him to reflect that in his final recommendation, but I found he didn't. He came across as a 'Yes' man who would nod earnestly to anything one said. He was almost the only IFA who replied to me though; the others obviously thinking £40k a rather trifling amount to bother themselves with!

40k is very very low for an IFA.    I wouldn't have built a personal portfolio at that level either.   There is little point playing around with sums that small.  A multi-asset fund is the ideal solution.

Malthusian

Woolsery said:

Yup, my 'ethical' fund is down about 14% since last November and I see zero signs that things will improve any time soon; rather the reverse.

No long term investor would be expecting the markets bounce back up "soon". Previous downturns have lasted as long as six years (from one peak to another) and that record will be broken one day.

I spoke to my IFA about minimising risk and maybe hedging via precious metals too in the current financial climate, but he stuck my money in a mid-risk fund and went deaf regarding gold etc....well, he wouldn't gain from that himself, would he?

Well, the first thing he would have needed to do is establish whether you wanted an ethical portfolio or to invest in gold, as you can't do both. There's nothing ethical about spewing massive amounts of carbon into the air just to dig shiny metal out of a hole in a poor country, fly it to a rich country and bury it in a different hole.

Whether a fund is £40k or £4 million, sticking 5-10% in shiny metal is ultimately only going to have a marginal effect when the rest of the portfolio has fallen 14% (and any more than that would be daft).