Statement of Investment Principles

This “Statement of Investment Principles” outlines the eight key aspects of how I seek to invest and manage client’s money. These principles shape the advice I provide to meet long-term investment goals.

1. Investing for long-term goals and saving for short-term goals

Money that you may need in the near future (three years or less) should be kept in short-term investments which protect capital. These include money market funds or bank accounts. You should only consider investment in such things as the stock market or corporate bonds when you have money to put away to help meet a longer-term objective. You should always keep a prudent, accessible reserve to reduce the chances of having to dip into your long-term portfolio is an emergency.

2. Minimising costs is vital for long-term investment success

Any investment returns you receive are reduced by the fees, transaction expenses, and any taxes. Therefore you can earn less than the market return after deducting all those costs. By putting strategies in place to minimise these costs, you could increase your investment returns over time and increase the likelihood of reaching your long term investment objectives.

3. Broad diversification reduces risk

By diversifying your investment portfolio, you could minimise the impact of market changes and fluctuations on the value of your portfolio. Through diversification you could reduce the overall exposure of your portfolio to risk. If an investment portfolio does not fairly reflect a reasonable cross-section of the investment market, both domestically and internationally, I believe you would be taking additional risk that is unlikely to pay-off over the long term.

4. Selecting the right mix of assets for multi-asset investing

Selecting the mix and proportion of the broad asset classes of stocks, bonds, property, cash and other assets for your portfolio is critically important. Much more so than deciding on individual shares or funds. When selecting your assets you should consider your financial needs, your tolerance to risk and the length of time you want to invest. Remember, you need to ensure that your portfolio aligns with your individual goals and needs.

5. Understanding how and why your investments fits into your financial plan

You need to have a clear understanding of why you own each particular investment and how it fits into your financial plans. Without this clarity of purpose, you may not achieve your financial goals.

6. Weighing “shortfall” risk against “market risk”

Shortfall risk is the possibility that a portfolio may fail to meet longer term financial goals and market risk is the possibility that returns may fluctuate. In order to achieve your long term goals you need to accept some level of risk that comes with market changes during the term you hold your investments. Earning enough to meet objectives in the longer term is much more important than whether investments suffer short term declines or trail a market benchmark. Many Investors react only to market risk, buying stocks when markets are doing well, taking on more market risk than they realise. Conversely, they’re tempted to reduce allocations to stocks in response to market downturns. In truth, to achieve long term goals, clients need to accept some level of risk and be prepared for the ups and downs along the journey.

7. Market-timing and performance chasing don’t guarantee good returns

Market-timers, who buy and sell frequently stand to lose money from market movements while also paying significant transaction costs. Also, there is no guarantee that a performance-chasing strategy involving an asset class or fund that has performed well will continue that trend. The investment principle here is, “Time in the market, not timing the market”. Investopedia explores this in greater detail in their article.

8. Past performance is not a reliable indicator of future returns

The major asset classes have well established risk/reward characteristics and so are often used for estimating future returns for investments. Usually you should not expect your future long term returns to be significantly higher or lower then historical returns. However, always remember that no method for predicting market returns is perfect and that past performance is not a guaranteed reliable indicator of future results.

What’s next?

If you have money to invest or have already invested, but are unsure of the suitability of those investments, let’s start a discussion. Please fill-in the form below and I’ll give you a link to our risk-profiling tool to start off a review process.

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    About Clive Barwell

    Clive Barwell is one of the most experienced and qualified financial planners working in the later life market today, he specialises in advice and guidance for the over 55s. To ask Clive a question, please email him at Alternatively, you can follow Clive on Twitter, connect with Clive on LinkedIn or see Clive's profile on Google+.