Success€¦ · IN THIS ISSUE... Editorial Team Editorial: Holt Public Relations Ltd Design & Print: citrusmedia Success Magazine is designed and published by Succession Group Limited

ISSUE 3 - 2017

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www.successiongroup.co.uk

Working together to secure a better future.In this issue of Success, we focus on investment strategies and planning for the New Year. We cover the best approach to asset allocation and creating a plan for 2018 and beyond. We also look at practical solutions for investing in the market going forward.

BALANCING YOUR ASSET ALLOCATION

FOCUSING ON LONG-TERM OBJECTIVES

PREPARING FOR THE NEW YEAR

DIVERSIFYING YOUR INVESTMENTS

IN THIS ISSUE...

Editorial TeamEditorial: Holt Public Relations Ltd

Design & Print: citrusmedia

Success Magazine is designed and published by Succession Group Limited. No part of this publication may be reproduced without the permission of the publishers.

This magazine has been written for information purposes only and does not constitute advice or a personal recommendation. It does not take into account the particular investment objectives, financial situations or needs of individuals. The information and opinions expressed in the articles are those of the relevant authors and based on information which they believe to be reliable. They do not represent that they are accurate or complete and they should not be relied on as such. Any information is given in good faith but is subject to change without notice.

This publication contains links to websites owned and operated by third parties. Succession Group cannot and has not reviewed all pages of the sites linked to this publication and therefore cannot be liable for their content. No liability whatsoever is accepted by Succession Group Ltd. FP: 2017-301

WelcomeJames Stevenson - Succession Group 2

Getting the balance right – asset allocationSuccession Group 4

Eye on the prize Succession Group 6

Preparing for a New YearSuccession Group 8

Best of both worldsSuccession Group 10

Investment management is a constant search for improvement

Charles Stanley 14

Time in the market, not timing the marketSuccession Group 16

Asset allocation in a time of anxietySuccession Group 18

3

...to this issue of Success Magazine.

At Succession Group, our overriding aim is to give you

all the support you need to maintain and manage

your wealth. Providing you with peace of mind and

financial security will always be our utmost priority

and we take this responsibility extremely seriously.

As an independent UK wealth management business

dedicated to serving the needs of our clients, we are

incredibly proud of our achievements. Our company

ends 2017 in a position of sustained growth and we

continue to move from strength to strength. We now have

12 regional hub offices around the country, supported by

close to 600 talented and hard-working people. One of

our most significant achievements this year has been the

launch of our learning and development programme,

Succession Academy, which is designed to keep our

Wealth Planners at the very top of their profession. Of

implicit importance to us is that you, our client, know you

can trust us in every eventuality.

So, despite a backdrop of continuing economic

uncertainty, we move forward with great hope and

expectation. Of course, the continuing story for our

market will be the implications of the UK’s negotiated

exit from the European Union and we are closely

monitoring its impact on the economy and the market.

UK economic growth is expected to slow further in 2018,

to 1.5%. The Bank of England raised rates in November

by 0.25% to 0.5%, the first time since July 2007, reversing

the emergency 0.25% cut implemented in August

2016. Inflation for November was still above the Bank of

England’s 2% target at 3.1%.

All of this means it is essential to do all we can to make

our money work harder. It is important to understand the

nature of risk when it comes to your investment portfolio

and how to build it into your strategy, so it benefits you

in the long term. Setting clear objectives, approaching

the stock market through a longer-view lens, and even

understanding the role of the media and how it impacts

market trends are key to risk management.

Crucially, you don’t need to navigate this terrain on your

own. This issue covers these topics and your Succession

Wealth Planner is always on hand to guide you.

A long-term investment outlook is important, but it is

also essential to regularly assess how your portfolio is

performing. The New Year is the perfect occasion to

do just that. Understanding investment strategies is a

prudent exercise and in this magazine, we explore a

number of different approaches. After all, well-designed

investment plans reduce anxieties and improve

outcomes.

May I take this opportunity to wish you and your family a

wonderful 2018.

WELCOME…

2

James StevensonManaging Director

Success MAGAZINE www.successiongroup.co.uk

GETTING THE BALANCE RIGHT - ASSET ALLOCATION

Getting the balance rightBut getting the right blend between assets involves

more than a random selection and requires a careful

assessment of their respective characteristics, behaviours

and interrelationships. It is important to get this stage right

because research has shown that asset allocation can be a

key determinant of long-term portfolio performance.

What’s going to work? – Teamwork!Think of your portfolio like a football team and you’ll be on

the right lines. Some asset types, like cash and government

bonds, can have more ‘defensive’ characteristics whilst

equities and their higher return potential can provide your

portfolio with a real ‘attacking’ element. Like any successful

team you should look to have ‘balance’, providing scope

for performance and resilience, whatever the prevailing

financial backdrop.

Assessing risk & being mindful of time…When creating a portfolio it is crucial to understand the

amount of risk you are willing to take as this will determine

the best type of asset mix, and ultimately the potential

investment rewards you are aiming to generate. Time

horizon is also important – if you are saving for retirement, for

example, the closer you get to your goal the less risk you are

likely to want to be exposed to! You don’t want your lump-

sum fluctuating wildly just before retirement, particularly if

that capital is going to be used to generate an income.

The pie charts below show how the composition of a typical

portfolio may change over the lifetime of the investor.

These portfolios are for illustrative purposes only. Investors

should consult a professional adviser.

From tactics board to pitchThe rationale for diversifying your portfolio between different

asset classes is a relatively straightforward concept to grasp.

Implementing it into practice and achieving effective ‘asset

allocation’ is slightly more complex. Fortunately, there are

a number of solutions available and your Wealth Planner

can help you choose a balanced portfolio aligned with

your needs. Some may be orientated around producing

performance in line with defined risk parameters whereas

others may be more focused on something more specific -

like income.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

© 2017 BMO Global Asset Management. All rights reserved. BMO Global Asset Man-agement is a trading name of F&C Management Limited, which is authorised and regulated by the Financial Conduct Authority.

Look up ‘asset allocation’ in any dictionary and you’ll find a definition along the lines of ‘asset allocation is the division and allocation of a pool of funds between asset classes’. In other words, you have a pot of money to invest, how should you divide it up between the likes of shares, bonds, property and cash?

Reaping real gains but avoiding the crunch Investors looking to tap into the potential rewards of

investment in financial assets would be to wise consider

the risks alongside the scope for profit. For example, whilst

investing in shares provides scope to generate returns

(growth, income or a combination of the two) it also involves

taking on board a degree of ‘investment risk’. Events like

2007’s credit crunch, Europe’s financial crisis in 2011 and the

Brexit referendum provide reminders of the way in which

investments can feel the impact of largely unpredictable

factors.

Such events emphasise the need to avoid placing all your

‘investment eggs’ in one basket and ‘diversifying’ risk across

a range of asset types. This works because over the medium

to long term, different types of financial assets generally

behave in different ways under the same prevailing

conditions.

Diversification, however, does not eliminate risk and investors

still may not get back the original amount invested.

Pinning the tail on the investment donkeyAnother consideration is the fact that predicting the future

performance of specific asset classes or geographies

is fraught with difficulty. Or, in other words, that past

performance is not a guide to future performance. The

chart below starkly illustrates this by ranking the best to

worst performing asset types by their annual percentage

returns over the last 15 years – its patchwork composition

demonstrates the variable nature of performance from year

to year and relative to other assets. Again, diversification

could help – spreading risk and the scope for potential

reward across a blend of assets to help drive long-term

performance whilst at the same time reducing the risk of

being overly exposed to underperformance in any one

particular area.

4 5Success MAGAZINE www.successiongroup.co.uk

Some investment professionals focus on volatility as the primary risk, but with your Succession Wealth Planner you should focus more on the risk of not meeting your objectives over the long term.

Experts naturally have a different perspective on their

chosen subject matter than other people.

In finance, for example, some industry professionals tend

to think of risk in terms of volatility – essentially, a statistical

measure of how much an investment will go up and down

over a given period of time.

But, if we asked you about the biggest risk you face,

however, the answer will probably be running out of money.

After all, who cares about the journey an investment

portfolio takes provided it ends up in the right place?

Alas, it’s not as easy as that, even for those whose job doesn’t

involve closely watching a portfolio’s volatility every day.

Consider a simple investment in the FTSE All Share index of

UK stocks. If you put £10,000 into that basket of shares 10

years ago, it would now be worth a healthy £17,000. But,

because a decade ago happened to mark the beginning

of the financial crisis, that initial lump sum would have

plummeted to less than £6,000 by early 20091.

In that case, the appropriate form of risk management may

well have been to remain steadfast and trust the market’s

record of rewarding patient investors over the long term.

Your Succession Wealth Planner understands this crucial

point and will align your portfolio with your objectives,

balancing short-term protection of capital with that target.

Behavioural biases and inclinations do not make that a

simple endeavour, though. So, how can you guard against

acting on short-term volatility at the long-term cost of not

meeting your goals?

One important risk management technique in this regard

is diversification. If you only held UK stocks in 2008, you

would have found it very hard not to panic; your Succession

Wealth Planner would have constructed a more balanced

portfolio, which may also have included high quality bonds

for example to smooth the ride, and therefore you may

not have felt the need to sell out of stocks just before they

recovered.

Secondly, you should always keep in mind your long-

term objectives and think about how you are going to

meet them. For many, that will involve saving enough for

a comfortable retirement; your Wealth Planner will be well

versed in helping you achieve that financial security.

At the moment, an average 65 year old will need £600,000

in savings to generate an annual income of £20,000 in

retirement, according to BlackRock’s Cost of Retirement

Index.

Obviously, you may not be able to put away that much over the course

of your working life. But the good news is that you don’t have to. Instead,

thanks to the power of compounded investment returns, you can save less

than that – investing £450 a month in the FTSE All Share index for the past 30

years, or £162,000 in total, would have taken an individual past the £600,000

threshold – and still meet your goals2.

The key, though, is to create a sensible asset allocation that will help you to

weather downturns while also providing the exposure to higher-risk assets like

stocks that will power your portfolio over the long term.

UK stocks are expected to return an average of 5.4% a year over the next

decade, according to Research Affiliates; BlackRock reckons they will return

an annual average of 5.7% over the long term.

Either way, that is considerably better than leaving savings in cash accounts:

BlackRock predicts that cash savings will grow by just 1% a year in the UK over

the long term, while Research Affiliates believes cash will actually lose value

after the effects of inflation are factored in over the next 10 years.

The real risk you face, then, is unlikely to be the temporary fluctuations

reflected by market volatility. Rather, it is the far greater risk that you will fail

to meet your long-term saving targets either by quitting the market amid

short-term turbulence or by not maximising your potential retirement pot

because you have languished in cash rather than owning growth assets.

Your Succession Wealth Planner will help ensure neither risk costs your

financial security.

1. Source: Financial Express2. Source: Financial Express

EYE ON THE PRIZE.


The start of a new year is a time to take stock of the successes of the previous 12 months and make sure your finances are on track for the coming ones. Success Magazine suggests how.

While the chances are that your circumstances will not have changed too much over the past year, it is worth conducting a quick financial MOT just to make sure. It’s vital to keep things such as your will, life insurance and income protection policies up to date. Your Succession Wealth Planner can help to check that the policies you have in place continue to meet your needs if you are not sure.

Time fliesTime has a habit of flying by so, while April may seem a long way off, it will soon come around. Now is a good time to start thinking about using up all the allowances which are available to you – top your Isa account up and put some extra pennies in your pension before the end of the tax year on 5th April.

Tax allowances can be confusing as they change on a regular basis, so, if you are unsure, speak to your Wealth Planner to make sure you do not fall foul of the taxman – you might even be able to put more aside than you thought.

If you have used up your own savings allowances, consider starting a savings account for your children or grandchildren. Junior Isas can help children get into good savings habits at an early age and are a useful way to use up your annual tax-free gift allowance too.

Copy the professionalsProfessional investors will use the quiet winter months to get their investment portfolios primed for the year ahead. They may reduce their holdings in areas they expect to do less well and add more to those they expect to thrive. You should be doing the same.

If your funds have flourished over the past year then it may be worth taking some profits from those which have performed the best, so you are not over-exposed to any area, and adding more to those assets which have lagged. This is known as rebalancing your portfolio.

It might seem counter-intuitive to take money out of your winners and add to the laggards but it’s a strategy which can win out over time. That’s because it means you’re buying fund units and shares when they are cheaper and selling them when they are most expensive.

All changeAs you assess your investment portfolio you should consider whether your goals are still the same, or whether they have changed. As you move closer to retirement it is likely you will take less risk in your investment choices and start to think more about income-paying investment options.

While the government did not do much tinkering with pensions and savings in its most recent Budget, it is always worth keeping abreast of any forthcoming changes which could affect you.

From April 2018, the minimum contributions made to pensions through auto-enrolment will increase. Employers will have to increase their minimum contribution into employee pension schemes from 1 per cent to 2 per cent, while workers will see their own contribution rise from 1 per cent to 3 per cent.

These minimums will increase again a year later in April 2019, to 3 per cent and 5 per cent respectively. These will be welcome boosts to the retirement savings of many workers, but need to be factored in when considering any other pension pots to which you may be adding. Current rules state an individual can contribute up to £40,000 a year to their pension savings up to a maximum lifetime allowance of £1 million.

For more information, please talk to your Succession Wealth Planner.

1 https://www.nowpensions.com/help-centre/faqs/contributions/what-are-auto-enrolment-contribution-rates

PREPARING FOR A NEW YEAR.


A cost-averaging approach may enable you to relax about current valuations.

You may well have heard by now of the FANG stocks –

Facebook, Amazon, Netflix, and Google. So far this year, the

worst of them has returned 34% and the best 57%1.

These exceptional numbers pose a dilemma both if you

are a current shareholder and if you have so far missed

out. Those on the inside must worry about whether now is

the time to take some profits, while those on the outside

wonder whether the optimal time to buy into these surging

companies has already passed.

On both sides, your Succession Wealth Planner can

introduce you to a relatively simple investment technique

that can assuage your fears. Known as cost averaging,

it takes much of the anxiety and behavioural bias out of

investing.

The process is straightforward: rather than ploughing large

lump sums into the market, you deploy smaller amounts

at fixed intervals instead. So, for example, £10,000 may

be broken down into 10 separate instalments of £1,000

and invested over the course of 10 weeks or months. Cost

averaging is, in essence, not too dissimilar from making

regular, small investments on, say, a monthly basis rather

than investing your annual ISA allowance all in one go.

This intuitive, commonsense approach has a particular

advantage at a time when many are concerned by

elevated valuations in the market.

Think of trying to invest that £10,000 into a fund tracking

the UK stock market. If all that money is put in at once,

it is of course all immediately exposed to any declines in

the stock market. But if it is deployed progressively, only

smaller increments are at risk of losses until the full amount

is invested.

Moreover, if the stock market does fall during the deployment

period, each investment of £1,000 will go further. At the

start of the process it may have been equivalent to, say,

10 units at £100 each in the tracker fund. But if the market

weakens, through subsequent weeks that same £1,000

may buy 20 units at £50 each later on. You thus end up

with more units in the fund than you would have had by

putting all your money in at once, and, ultimately will enjoy

a proportionately higher return over the long term.

There are some drawbacks to this strategy, however, that

your Wealth Planner will discuss with you. First, you may not

want to lose any money at all, and so may prefer to stay out of the market

altogether if it looks too expensive. But this is likely to prove damaging in the

long term, because markets tend to go up over time – that is the nature of

capitalism – and you will miss out on the effect of compounded returns if you

stay in cash.

Second, cost averaging will prove detrimental to long-term returns if asset

prices continue to appreciate throughout the deployment period. In this

case, each instalment ends up buying less and investors miss out on the

compounding benefits of early gains.

Your Succession Wealth Planner will work with you to minimise these risks, but

cost averaging may nevertheless not be appropriate for you. Optimists and

those focused on the very long term will probably be better served by buying

in early and enjoying the long-term proceeds.

But if you have a shorter horizon – if you are saving for a mortgage deposit

or a holiday rather than retirement, for example – you may be unwilling to

take the risk that you buy in at precisely the wrong moment. In this case, cost

averaging is a way to invest slowly and steadily without committing all your

money to the risk of a market slump at once. And, naturally, it is so much

better if prices do fall and you can keep on buying at a discount!

1 Source: Bloomberg

BEST OF BOTH WORLDS.


We don’t just take a passive role in the companies we invest in.

We make ourselves heard on behalf of our investors.

The value of investments and any income from them may fall as well as rise, and you may get back less than you invest. Details of the specific and general risks associated with the funds mentioned are contained within the Key Investor Information Documents. Legal & General (Unit Trust Managers) Limited. Registered in England and Wales No.1009418. Registered office: One Coleman Street, London, EC2R 5AA. Authorised and regulated by the Financial Conduct Authority. *As at 31 December 2016.

Legal & General Index Funds

We’re one of the UK’s largest index managers with

£319.8bn in index funds*. We leverage our scale

and indexing expertise to offer clients the most

cost-effective index funds we can. But we also

engage with companies to represent investors’

interests, effect change and improve company

performance. Because we believe that good

corporate governance protects the long-term

prospects of our investors. But also, because

it’s the right thing to do for the next generation.

For more information please contact your Succession Wealth Planner

LGIM0091_Loudhailer_SN_297x210.indd 1 11/07/2017 16:01

For advised clients only. Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. If you invest through a third party provider charges, performance and terms and conditions may differ materially. Nothing in this document is intended to or should be construed as advice. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. © 2017, Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC. H032636/1117

Income speaks volumesGenerating an attractive level of income in today’s low interest rate environment isn’t easy. So take a look at the Janus Henderson Core Multi-Asset Solutions range.

For more info contact your Succession Wealth Planner.

Janus Henderson CoreMulti-Asset Solutions

Janus Henderson fund % Yield†

Janus Henderson Core 3 Income Fund 3.5



Janus Henderson Core 6 Income & Growth Fund 4.0† Historical 12 month yields as at 31 October 2017. Based on ‘I Inc’ share class. Source: Janus Henderson Investors. Yields may vary and are not guaranteed.

*OCF (Ongoing Charges Figure) may vary over time.

For promotional purposes

For more information, please contact your Wealth Planner.

GSAM.com

For more information about the funds and risks, please contact your Succession Group Wealth Planner..

The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk. In the United Kingdom, this material is a financial promotion and has been approved by Goldman Sachs

International, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Confidentiality No part of this material may, without GSAM’s

prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient. © 2017 Goldman

Sachs. All rights reserved. 95539-OTU-543690

The three-year anniversary of the Goldman Sachs Wealthbuilder Multi-Asset Portfolios coincides with strong historic performance of

meeting investors’ distinct objectives through a diversified and dynamic multi-asset solution.

We understand that investors have different goals when it comes to investing their money. Therefore we offer a choice of three

multi-asset funds, which can allow an investor to access global opportunities, diversify exposure to risk and achieve a smooth

investment experience over the long term.

GOLDMAN SACHS WEALTHBUILDER MULTI-ASSET PORTFOLIOS

Define your goals. We’ll do the rest.


INVESTMENT MANAGEMENT IS A CONSTANT SEARCH FOR IMPROVEMENT.

Analysts and managers ask themselves daily what they can do to improve returns for savers and control risks better. The job is part economics, part understanding the way the media see events, and part crowd psychology. To do well you not only need to get enough right about what is likely to happen next, but you also need to judge how markets will respond to what happens.

The investment world in the West has been very different

following the 2007-09 banking crash. Investors have had to

get used to interest rates at record lows. More and more

time has been spent studying the words and actions of the

Central Banks who have been buying up large quantities

of government debts. This action has pushed up the prices

of government debt and kept interest rates very low. As a

result savers have not only found returns from bank savings

accounts disappointing, they have also found that if they

buy a government bond, a small share of a government’s

borrowings, they still suffer from low interest rates.

The absence of good interest rates on deposits and savings

bonds has led many investors to take more risk to get a

better return. People need to be careful. If you invest in

shares or property, you face the prospect of losing your

money if the prices fall. If savings are needed for living

costs or short-term purchases, it is not a good idea to run

risks of losing money in the short-term. For people that have

long-term savings, they might look at putting some of their

money into riskier assets. In this post-crash world you can

get a better dividend income on many shares than you get

interest on government bonds, and there have also been

good capital gains on the major share indices of the world.

When investment professionals draw up recommendations

for how to invest, they usually set out a portfolio approach.

None of us know for certain what US shares or German

bonds are going to do over the next year or so. Experience

teaches us that it is better to recommend spreading the

portfolio through a range of different assets and markets.

You will not enjoy all the benefits of the asset classes that do

best, nor will you suffer the full falls of the asset classes that

do worst. The industry also provides guidance on how much

risk various portfolios are running, based on how assets have

performed in the past. Broadly speaking, history shows that

if you have a higher risk fund primarily invested in shares, you

will generally do better over the long term, but you can lose

a lot of money in any given year or two when there is a bear market. If you

stick with government bonds you tend to make less money, but your losses

are more limited when things go wrong.

Today, many people are asking has the bull market in shares gone too far?

Is this now the time to go back into cash for fear of losing money from price

falls? At Charles Stanley, we do not think this is the end of the cycle. There

can be short periods of falling prices when the dominant mood in a market

becomes negative, but to turn a correction into something bigger and more

alarming it would take a banking crash or a major downturn. For the time

being, the main governments and Central Banks of the world seem relieved

that at last there is a synchronised recovery underway in the world. The Bank

of Japan continues to create new money and buy bonds to keep rates low.

The European Central Bank plans another year of money creation and low

interest rates. The US is edging interest rates upwards, but not at a pace

which is likely to stop the recovery.

This leads us to be cautiously optimistic about shares. With a proper spread in

a portfolio it looks as if the best you can do is to continue to back the world

recovery, and learn to live with low interest rates.

Investing involves risk – if you are unsure of the suitability of your investments please seek professional advice. This information does not constitute advice or a personal recommendation to deal.

Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority and a member of the London Stock Exchange. Registered in England No. 1903304, registered office: 55 Bishopsgate, London EC2N 3AS.

Succumbing to fear in recent years would have robbed you of the spectacular returns generated by the power of compounding.

Fear and greed are notorious drivers of financial markets.

In recent years, however, the latter vice has proved

emphatically virtuous.

The FTSE All Share index – which represents UK stocks – has,

for example, not had a down year, once dividends are

factored in, since 2011. That run includes some exceptional

periods, including a gain of 20.8% in 2013 and 16.8% in 20161.

In total, if you had simply held onto UK stocks since the

beginning of 2012 you would have enjoyed a return of 75%

– in other words, an initial lump sum of £10,000 would have

blossomed into £17,5002.

That profit will not have come easily if you watched the

market throughout those five years, though. Fear may have

cost you dearly and left you with considerably less than the

maximum potential return.

Consider, for example, all the perfectly valid reasons you

could have had to bank your gains over the past five years

or even sell out of the market entirely.

In 2012, the UK suffered its first double-dip recession since the

1970s. 2013 brought what was known as the ‘taper tantrum’,

as markets panicked at the prospect of America’s central

bank adopting less-friendly policies. In 2014, the UK market

slumped to a 15-month low amid concern about weak

economic growth. The following year, the oil price crashed

and took with it the share prices of important UK stocks like

BP and Shell. Last year, shock votes in favour of Brexit and

then Donald Trump took investors by surprise. And, even

leaving aside geopolitical tensions this year, investors have

continued to fret about the expensive valuations attached

to many stocks following the prolonged rally.

These are more than merely theoretical issues: acting on

these fears is costing investors real money. According to

analysis by Dalbar, a firm which tracks the funds bought and

sold by individuals, the average investor earned a return

of 2.3% a year between 1997 and 2016. Simply holding a

standard balanced portfolio, with 60% in stocks and 40%

in bonds, through that period would have returned 6.9% a

year – three times more.

Similar work by JP Morgan makes the same point in a

different way. An investor who simply bought and held the

FTSE All Share index between 1996 and 2016 would have

made an average annual return of 7.4%. Anyone who

missed only the 10 best days in that market over that time

by having sold out, however, would have made just 4.2%

a year. An unlucky investor who missed the 50 best days

would actually have lost 2.9% a year. That is the difference

between an initial £10,000 turning into more than £40,000 for someone who

remained fully invested and it becoming less than £25,000 for the person who

missed the 10 best days. Those who missed the best 50 days will have lost

almost half their money through the full 20 years.

Missing out on so much profit seems scarcely credible, but it is not only a

factor of the market’s tendency to reward investors over the long term but

of simple mathematics. Those who buy and hold do not merely avoid missing

out on the good days; the power of compounding means that they enjoy

an extra boost.

A simple example would be a market that returns 10% one year and repeats

that feat the next. If you put £10,000 into that market, you do not simply end

up with £12,000, equivalent to a 20% profit. Instead, the initial sum becomes

£11,000 after the first year and £12,100 the following year.

That bonus £100 may seem marginal, but it adds up over the years. A 25-year-

old who invests £5,000 a year, enjoying 5% growth a year, would end up with

almost £640,000 by their 65th birthday – not bad for the total of £200,000 paid

in over those 40 years.

This is why, as Albert Einstein put it, ‘compound interest is the eighth wonder

of the world’. Your Succession Wealth Planner understands this and will work

to ensure your portfolio benefits from it.

1 Source: Financial Express2 Source: Financial Express

TIME IN THE MARKET, NOT TIMING THE MARKET.


Diversification may be the solution to many of your worries about current investment markets.

Through 2016, the price of the so-called cryptocurrency

bitcoin shot from $1,000 to more than $19,000 – a return of

1,800%1. No other asset came close to having such a good

year – UK equities, as measured by the FTSE All Share index,

offered only 4%2.

So, should you simply dismiss diversification as a cornerstone

of prudent portfolio management and join a mania that has

delivered a lifetime’s worth of returns in a single year? After

all, stocks look expensive and bonds don’t provide much of

an income any more.

Yet those two attributes of the current investment landscape

make sensible asset allocation as important as ever, not a

relic of a bygone era.

Take bitcoin for a start. Despite fears that it is a bubble, to

say nothing of the risks of a bitcoin account being hacked,

there is a chance it may not collapse like dotcom stocks did

at the turn of the millennium.

Bitcoin has been driven higher by positive sentiment, but

market enthusiasm is sadly fickle. In the case of bitcoin,

there are not even any underlying cash flows to underpin a

valuation. Stocks and bonds, despite valid concerns about

those assets, can still boast that they possess some intrinsic

value derived from their underlying cash flows.

That does not make investing in them easy, of course. Stocks

tend to be valued relative to their earnings, and on this

measure they are far from cheap. The global stock market

currently trades at 23.8 times the value of its earnings,

compared with a 10-year average of 18.7 times3. The global

bond market, meanwhile, yields a paltry 1.7% – a far cry

from the interest rates of 5% or more bank accounts used to

pay, and even below the UK’s current inflation rate of 3%4.

Both assets nevertheless merit a place in your portfolio.

Stocks have, after all, looked pricy for several years now,

and that hasn’t stopped them from rising further. Businesses

like Apple and Unilever continue to make huge profits,

which should support their valuations and at least enables

them to pay dividends to their shareholders.

Bonds, on the other hand, are not solely used in portfolios to

pay you an income, they also play an important defensive

role: historically, investors have turned to them as safe

havens when other markets wobble, making them a form

of portfolio insurance. When UK stocks crashed in 2008, for

example, holders of the country’s sovereign bonds – known

as gilts – still made a 12.8% return5.

And even if you insist on an income from your bonds, you

and your Succession Wealth Planner have options. Bonds

issued by emerging markets, for instance, currently yield

4.5%, albeit that they carry more risk than UK government

bonds6.

This point also gets to the heart of diversified asset allocation:

it means not only holding some bonds and some stocks,

but spreading money across many investments such that

the most attractive opportunities are captured, and the

greatest potential trouble spots avoided.

Global stocks may, in aggregate, look expensive, for

example. But while US shares do trade at a considerable

premium to their long-term average, UK shares are in fact

currently slightly cheaper than they have been over the

past 10 years. Stock markets in countries like Russia and

Turkey have even deeper discounts, again, albeit with the

higher attendant risks7.

So, what are you to make of all this? First, don’t chase headlines about whatever asset is currently surging. Second, don’t avoid investing altogether simply because there are reasons for caution. Third, holding different assets within your portfolio may in fact lower its overall risk exposure. And fourth, you can work with your Succession Wealth Planner to maximise your chances of success by further diversifying not only across, but within, broad asset classes like stocks and bonds.

1 Source: CNBC2 Source: Financial Times3 Source: Research Affiliates4 Sources: Vanguard and ONS5 Source: Financial Express6 Source: Vanguard7 Source: Research Affiliates

ASSET ALLOCATION IN A TIME OF ANXIETY.


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