Investment Planning Will Pay Dividends

I have always taken a keen interest in history and particularly if the past can offer any useful lessons for investing. In 1986, ‘Big Bang’ marked the start of deregulation of the City and the move from human to electronic trading reflecting the pressures of globalisation. Until then, we are led to believe that the City had been a more genteel place, where each Summer traders would take time out to watch cricket, Wimbledon and Ascot.

This often resulted in thin volatile trading, leading to the adage ‘Sell in May and go away until St Leger’s Day’, the last of the five classic flat horse races which takes place each September in Doncaster.

After a rise of about 12% in the UK stock market since January, many clients are asking if this old adage still holds good. Whilst in 2007 and 2011 markets performed strongly at the start and end of the year, in four of the last ten years, staying invested has been the best approach. In such a fast moving globalised world with 24/7 trading, it is unsurprising that not being invested for four months of the year is not a reliable investment approach; after all, you have to be in it to win it.

However, such sayings teach the importance of investment discipline. A starting point is to ensure your portfolio reflects your objectives in terms of time horizon, attitude to risk and diversification so you don’t put too many eggs in one basket. Then, you need selection criteria for your investments, as well as a review process so investments have time to grow and you resist the temptation to tinker. Whilst some people enjoy managing their own investments, many clients prefer the support and advice of a professional adviser.

A professional investment adviser will operate a robust investment process so you can structure your investment portfolio with an appropriate strategy. Over time, this should deliver attractive returns and mitigate risks as far as possible.

You need to decide if you wish your investments to be managed on an ‘advisory’ or ‘discretionary’ basis. On an advisory basis, your adviser will consult you before making any changes to your portfolio, whilst on a discretionary basis you agree terms of reference with your adviser, who can then proceed to buy and sell investments without your prior agreement. In my firm, we offer an advisory service and are equally happy to recommend a third-party discretionary manager where a client has a preference for a discretionary arrangement.

With regard to the investment outlook, whilst dark economic clouds remain in areas such as the Eurozone and China, I am looking forward to the Summer, buoyed by the biggest rise in six years in UK consumer spending, improving levels of confidence, and stock markets which still appear reasonably valued compared with long-term averages.

[Matthew Clark, Western Morning News, 30 May 2013]

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