There are two main ways you can go about investing: you can do-it-yourself and create your own execution only investment portfolio, or you can appoint a discretionary manager who will select and manage your investments for you.
This first option is fine if you have knowledge or an interest in finance, or time on your hands! These days, the volume and ease of access to information in the media can give the illusion that investing is easy. But as the recent fall of even high profile fund managers, such as Neil Woodford, reminds us – past performance is not necessarily a predictor of future returns!
Alternatively, you can delegate your financial decisions to an established discretionary manager, who can work with you to design a portfolio to meet your specific financial needs and appetite for risk, and then manage it for you. Inevitably, this will incur costs over and above the standard dealing costs associated with managing your own portfolio, but a good discretionary manager should be worth the investment.
Five things to look for in an investment manager
1. A long-term focus
Taking a long-term view means you should not need to take more risk than you are comfortable with. Investments that promise to achieve a lot in a short period of time are almost certainly too good to be true. You could even lose some of your original investment given the close relationship between risk and reward.
Investing over the long term also allows you to benefit the most from equities – a type of investment that can really help your portfolio grow. Unfortunately, equity investments also tend to react the most to short term events and markets can, of course, go down, as well as up – hence the need for a long-term focus and a clear investment process to remove the emotions associated with investing.
2. An understanding of risk
It is easy to be deterred by the necessary discussions about risk, but a good investment manager will manage these for you. And it is important to always remember that without investing, you could run the risk of not achieving your financial goals.
3. Is the portfolio properly diversified?
An investment manager should be properly diversified and different types of diversification can include:
- Multiple investments – using funds rather than a very small number of direct company investments
- Different types of assets, including equities, bonds, cash, property and alternative assets
- Different geographies, countries at different stages of development all around the world
- Different currencies – an approach not many investment managers currently take.
All investments are affected by what is happening in the world, but different types behave in different ways. This means the manager can seek to maximise your investments returns, within the range of risk you are comfortable with.
4. Is there a home bias in the asset allocation?
Asset allocation is how the manager decides what percentage of your investments should be invested in which type of investment. They should draw on an extensive investment research capability to advise on the most appropriate asset allocation for you, from both a strategic and tactical perspective.
By actively managing the investments that are bought on your behalf, the manager seeks to benefit the most from how each of these investments are expected to behave over the long term, based on economic, financial and political changes individually and collectively.
An investment manager should not be limited by the country you call home. After all, your salary, family home and any number of your other assets are already affected by what is happening in that country. Why should your investments have to be in the same boat?
5. Is there a keen eye on costs?
Every investment manager will say that cost is an important factor in their approach, but it really is crucial. A good manager can provide wider market access, to primary markets and institutional rates that are not available to an individual investor.
A good discretionary manager can add value by applying their experience and expertise to meet your investment goals. Most importantly, they can take an objective view and remove some of the emotion from financial decision making, which should provide peace of mind and free up your time for better things.
At Nedbank Private Wealth, we have been working closely with private clients across generations, and are ideally placed to create wealth solutions tailored to your needs, both within the UK and internationally. If you would like to find out more about our approach to investing, please contact us on +44 (0)1624 645000.
We hope you enjoyed reading this article
Richie has over 20 years’ experience in the financial services industry, holding a variety of roles in the banking, treasury and investment sectors. Previous positions were held at Barclays Bank and, latterly, Ermitage Global Wealth Management Jersey Limited where he was a director and member of its investment committee. His main responsibilities involve providing the highest level of service to a number of domestic and international high-net-worth private clients, in addition to maintaining select intermediary relationships. Richie builds strong relationships with his portfolio of clients and provides a tailored and holistic private banking service, offering integrated banking, lending and investment management solutions. Richie is a Chartered Fellow of the Chartered Institute for Securities & Investment.