Disciplined reviews are essential

We need to make sure that your financial plan and investment portfolio is not only up to date, but is actually ahead of the curve in terms of changing taxes, investment markets and product developments. Nobody’s life stands still, so we aim to anticipate – given your age and other factors - what might happen in your life. But of course you can always expect the the unexpected so we strive to adapt to those unexpected events.

We will provide you with a yearly statement – a set of accounts that lists the losses and gains within your portfolio, so that you can clearly see the real returns you are achieving after tax and after charges.  We will highlight the value that we have added and we will report on every transaction undertaken detailing whether it made a positive or negative difference to your portfolio. On top of that, we will compare your investment returns to the returns you would have received in cash, and to the projected return within your overall plan. Once your investments have been in place for five years, we will construct a five year returns table so that you can see exactly what your average annual return has been.

Capturing gains

‘Portfolio rebalancing’ is key to delivering consistent returns. Although the strategy is simple and logical, it is nevertheless sometimes difficult (for emotional reasons) to execute.

The first principle of rebalancing is to buy assets at a relative low and sell them at a relative high. So far so good - we have yet to meet an investor who disagrees with this fundamental principle. If however, we apply that thinking to a client’s portfolio that’s when things can get tricky. In reality it’s akin to asking our clients to sell their best performing assets and buy their worst performing assets.

Here’s an example scenario: if we start off with 50% of equities in our portfolio and the market rises by 10% then equities amount to 55% of the portfolio. In that situation we would suggest banking the gain of 10% and reinvesting the proceeds in other asset classes to rebalance (take) the portfolio back to its original position. It’s a way of ensuring that we dictate risk to the portfolio rather than allowing the portfolio to dictate risk to us.

Following our rebalancing model we would have been selling equities every year into the rising market. Not because we felt that the market was too high, but simply because we believe in banking gains. Conversely, we would have used those gains to buy into the falling market from 2007 through to 2009.

Taking that course of action minimises losses, stabilises returns and ensures that decisions are made on a logical rather than emotional basis.

If the facts change, our minds do as well

We know that buy and hold simply doesn’t work. The outlook for a market – any market - can change in a heartbeat and that’s a situation we relish. Not only are we prepared to adapt to these changes we welcome them as they present the perfect opportunity to demonstrate our expertise and managerial nimbleness.  

On occasions we may switch into a fund or a sector and then quickly switch out again with a view to producing a worthwhile return or protecting your capital.  Incidentally, our fee structure ensures that we are not rewarded for taking advantage of market movements, quite the opposite in fact because it creates extra work for our investment team and administrators.  Any changes we recommend will always be purely in your best interests to either protect your assets or increase their value and not to generate fees or commissions on our behalf.