There is no simple answer as to what to do –
Scenario 1 – there are those who say if I don’t look at my investments it will go away and everything will be fine – maybe but which decade is the question.
Scenario 2 – do nothing and the markets will return – maybe but not sure if that will be in my lifetime
Scenario 3 – convert all investments into cash (cash is king?) – but then inflation runs at a higher rate than the net rates of interest typically available but at least the capital value doesn’t drop just its buying power
Scenario 4 – structured products but what about Lehman Brothers – who could be next? Anyway how say are these investments?
How I Approach This For Clients
Investments are split theoretically into three defined areas – deposit based, structured products and investment portfolio.
Some of the questions to ask (this is an infinite list so her are just a few) :-
1. When do you need access to the money? (This will have differing lengths depending the facility, your needs, goals and wishes)
2. How long is the investment period for each of these investments?
3. Taxation – what tax structure would help minimise tax payable (i.e. if you pay less in tax then you can, assuming you make a profit, retain more of the profits)
4. Attitude to Investment Risk – risk of inflation eroding the buying power of the capital value, risk of corporate actions and failures, volatility of the capital value
5. Goals and Expectations – keep them realistic
6. Your age and earning potential
7. Changes to personal circumstances – coming up to retirement, changing jobs, losing your job, career development, periods of retraining, etc.
8. Capital protection, income and/or growth
9. Make a plan, follow the strategy through – review and be ready to change depending on outcomes – only factual not emotive
Outcome
The point is there are many-many issues to consider and this will alter the structure and the inclusion of assets in your investment portfolio. The important point is to minimise costs and tax wherever possible and maximise potential risk adjusted returns.
So don’t leave cash money in a fixed term or bonus related deposit facility post maturity date as the proceeds will be, in most cases, placed on a low-interest bearing account awaiting your further instruction. If you have a variable rate facility – check the rate you are receiving (rates change).
Structured products – not suitable for all but may be a good investment portfolio diversifier but care is needed as the range, success and risks linked to these products are diverse. The potential is to include an asset that behaves in a different way to both cash and portfolio – with a clear idea to potential returns (assuming product criteria are met).
Portfolio – in my opinion this has the greatest potential to positive returns but over a medium to longer term. In the short-term especially, volatility is a major issue and the capital value will fluctuate both up and down. This is the reason why risk profile is so important. By combining assets and asset classes in the portfolio this will design a level of volatility to match your outlook. This is designed to narrow the range of possible outcomes to match your tolerance to volatility and losses but in the fullness of time to hopefully achieve the planned returns.
The point with investing is – review on a regular basis and changes may be needed over time but will depend on many variables.
The focus is make a profit but be realistic – never get caught up in the euphoria of success – i.e. if something is doing exceptionally well why? and it may be the fore-runner of a boom (and or bust) market – a glitch or something else. In the same vent – if something is underperforming and looks unlikely to perform – should this be retained? Investing is not about always being right but rather putting right what went wrong and quickly.
Alas, I am yet to meet anyone whose crystal ball which works any better than mine and my crystal ball has never worked anyway.
With investing – remember never panic, don’t buy on a whim or when everyone says – you can’t make a loss – be logical and sensible.
I rely on expertise, constantly reviewing and assessing, making recommendations and implementing changes when suitable and listening to many market experts opinions, many-many market indicators, trend analysis, market research and most important COMMON SENSE.
Good luck investing – let me know if I can help.
Welshmoneywiz (Darren)
