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Portfolio Management
Portfolio Management
Portfolio Management - Balancing The Risks For Long Term Success |
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One of the key aspects of planning for the financial future is to make sure that you are well diversified in terms of investments. Placing all faith in one segment, sector or asset class may yield spectacular results – if you get it right. But it can also lead to a major shortfall if the particular asset in which you are invested takes a cyclical downturn at the time you need to raise cash. Diversification is similar to generating an insured spread against failure. It is not about winning big – but making sure that you win overall. As such, it is a sensible strategy to be adopted by the majority of investors who lack specialist knowledge of any one asset class. Most will already be partially diversified in terms of their investments. Home ownership provides exposure to the consumer property market and company managed pension funds provide stocks, share, bond and some geographic exposure. There may even be some cash savings in tax efficient products such as ISA's or National Savings products. And for most, that will be where the planning stops. However, there is more that can be done to improve the spread of exposures with an opportunity to bolster returns, or obviate losses. Second home ownership (whether for holiday use or letting) provides additional exposure to the property market. This may even be outside the UK through shared or full ownership. Whilst this carries a certain risk of uncertainty (for example intimate knowledge of that country's property market and tax rules) it also means that you are not solely locked into the vagaries of the UK cycles. Furthermore, depending upon how you finance your overseas acquisition, you may have a foreign currency mortgage or cash held in another currency meaning that you can benefit, or lose, from the relative strength of sterling. Timing is all – so a careful look at not only the property market performance but also the trend in currency values is vital to optimise investment value. With the advent of Self Invested Personal Pension Plans (SIPPs), you now have the opportunity to take more direct control over how you save for the future. Whilst you may have a company defined contribution or benefit pension plan, a SIPP allows you a complementary form of tax efficient saving that is directly managed by you. You can invest up to 100% or £245,000 of your earnings into a plan and then invest in a wide range of funds, bonds and shares allowing you a geographic and sector spread to balance your portfolio. Funds are also available in commodities (such as gold and other tradable metals) or currencies. The more adventurous may wish to invest some of their earnings into spread betting or foreign exchange trading. It is best if you have some knowledge of the markets, companies or currencies although it is possible to trade with little or none. Many spread betting or forex trading sites have educational and practice facilities before you begin in earnest. The leveraging effect of the trade makes the potential returns (either positive or negative) large. Through using stop loss or stop gain positions, you can limit the downside and optimise the upside without risking all. These are not for the faint hearted and certainly not for the bulk of the portfolio – but can be an exciting way to use a small portion of your cash portfolio to try and generate spectacular returns in a volatile market. Having cash is good – but the returns can be limited and finding a safe home in these troubled times is not easy. A wide spread of investments, both by asset class and geographic spread, means that you have lots of fingers in many pies, some of which will return well, and some of which may do less well. Property, shares, currency, other mature or emerging markets and commodities all provide potential homes for the well diversified portfolio. Safer exposure can be obtained through the many funds provided by the big investment houses such as Fidelity, Aberdeen Asset or FundsNetwork so a little bit of research can provide a good, balanced spread for your portfolio. Gear your investment decisions to your appetite for risk – stick close to home and in markets and currencies you understand if you are not adventurous – if you are prepared to gamble for higher returns, then look to emerging markets, spread betting or forex trading. There is something available for every palate. |