Financial Planners Chartered

The recipe for all-weather investing

ANY successful chef knows that creating a memorable meal requires both a carefully crafted recipe and the finest possible ingredients, writes David Williams IFA consultant Stephen Womack.

The same principle holds true in investing. Simply throwing together a collection of ‘fine ingredients’ – such as quality investment funds or fast-growing shares – is no guarantee of success. It is vital to have an investment recipe too, which ensures these various ingredients are combined in the right proportions and at the right time.

David Williams IFA spends a lot of time working to ensure that our investment recipes are appropriate in the current market conditions. This work informs the way we construct portfolios for clients’ pensions, Isas and investments.

Just as diners have their favourite tastes and flavours, so each investor has a different appetite for risk. Deciding on the appropriate asset-allocation – the mix of shares, bonds, property, cash and other types of investment to hold in a portfolio – is absolutely crucial to giving clients the best possible returns given the risks they are willing to take.

Both stock and bond markets have had a relatively strong run over the past five years. Investors have benefited from good growth from these asset classes, albeit with some periods of minor ups and downs. The next five years are unlikely to be as benign for bonds and equities, with bonds in particular suffering as interest rates start to rise. So this means being realistic about the appropriate investment recipe and changing the mix to give other ingredients a stronger role.

Over the past 12 months, for example, clients’ portfolios have benefited from a higher weighting towards commercial property. Other types of investment with more defensive characteristics, including multi-asset funds and with-profits investments, are also likely to play a bigger role in the months ahead.

Another way to protect against market turbulence is through measured use of structured equity plans. These can deliver a set return over a set period of time, including offering the potential for gains even if stock markets are flat or fall slightly. This type of investment has increasingly been a core part of our clients’ portfolios over the past few years.

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