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Investment management services

There are many schools of thought about the best way to invest money.

Firstly, we are financial planners, not fund managers. Fund management is a highly specialised skill, and in our efforts to provide the very best service possible at all times our belief is that our customers will best benefit from the input of dedicated specialists. As a result we made the decision to outsource investment management to a group of selected, highly qualified professionals who live, eat and breathe the markets.

Active management or passive management?

There are those that argue that professional fund managers add value by actively selecting the investments for a portfolio. The theory is that if you select the best performing funds or fund managers, that you will outperform the market. Others argue that a very high proportion of active fund managers consistently under perform the market, mainly because the charges they make are too high.

We have some sympathy with the view that simply investing in the main, developed markets of the world through passive strategies is worth pursuing. In other words, fund managers struggle to add value in well researched, traditional markets. However, we believe that there are other areas of the market where a specialist knowledge is extremely valuable. Examples would include exposure to emerging markets, specialist markets, commodities, funds of hedge funds, property funds and structured products.

We are happy to adopt a strategy that includes active and passive management.

Asset allocation

Studies show that most of the return on a portfolio (about 90%) can be attributed to the choice of assets selected. In other words, the short term effect of timing of the investment or the choice of fund manager adds little in the way of value over the longer term. Most financial planners probably agree that a diversified portfolio of a mixture of assets is the most important thing to get right when designing a portfolio. The mix of assets needs to be set in relation to the level of return required by the client and the extent to which the client can tolerate capital volatility. The different spread of assets and varying risk profiles is known as 'Asset Allocation'

Target rate of return

Linked to asset allocation should be an understanding of the rate of return needed to achieve your objectives. For example, there is no point investing in cash assets that might generate say, 4% per annum if, in order to achieve your goals, you need to achieve a return of say, 7% per annum. In the same way, why take the risk that your portfolio might fall in value by chasing a return of 8% per annum, if you only need a return of 5% to achieve your goals.

For us, as financial planners, this is one of the key reasons to go through the financial planning process. You will have a clearer idea of what is needed. Once you understand the target rate of return needed to achieve your goals, you will be better placed to make a sensible decision about how much risk you need to take and whether you are comfortable with it.