30 August 2011

Investment Reviews

Reviewing investment funds is pretty difficult at the moment. Long term performance trends are swamped by the falls across the markets in early August, and it is certainly not worth making decisions on the basis of such widespread volatility. Reviews aren't done solely on the basis of performance, of course, but even if you look at the fundamentals of where and how the funds are invested, you will find wide-ranging opinions about where you should / shouldn't be invested.

So it's time to stick to our guns, point out to clients that they are in this for the long term, and then come back to do some annual reviews when things are a bit calmer.

19 August 2011

Do you need a new investment strategy?

Conventional wisdom says invest in equities (shares-based investments) for the capital growth you need for pensions, etc., etc.. Historically there is no doubt that this is a good strategy, and it is not difficult to show that equities out-strip other types of investment over the longer term.

BUT...
In the words of Dominic Rossi - Global CIO for Fidelity - Equities have been offering "jam tomorrow" for some time now. And after three recent bear markets (2000, 2008, and the present drop - if we are in another one) along with massive ongoing volatility, it is only sensible for investors to ask if they are doing the right thing.

It's foolish to dive in with a knee-jerk reaction (although there are plenty of fools around), but I am inclining to think that with unreliable capital growth, a greater emphasis on investing for income is a safer strategy. That doesn't mean you need to actually receive a regular income from your investments, since that income can be re-invested. But it does mean that there is some ongoing reason for the value to grow.

Investing for income could mean "equity income" funds, which derive their income from dividends, or it could mean "fixed interest" investments such as corporate bonds which pay a regular income. With falling values, the yields (income) on offer can look attractive. And anything that appears attractive in today's bleak investment landscape is worth a look!

15 August 2011

The Washing Machine Gives Up

Personally I am "reasonably adventurous" when it comes to investment risk. In other words I can still sleep at night if there is a reasonably large fall in investment value, largely because I know I will not be surrendering any investments any time soon.


 But I am NOT risking anything when it comes to having access to cash for miscellaneous purposes (like the washing machine which gave up yesterday). And I am certainly not going to put anything except short term expenditure on a credit card - that's a mug's game. That's where a "Piggy Bank fund" (or "emergency fund") comes in.

I often recommend to my financial planning clients that they should put such a thing in place. Even if it's not a separate account it's worth earmarking some cash somewhere which you can easily get to and which doesn't get spent from month to month. A quarter or a third of annual income is my usual first suggestion, although in view of low interest rates that may be a little high if income and expenditure are fairly stable.

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