We have seen how unexpected events can impact on investment markets – last year with Brexit and Trump and this year with the run up to the French Presidential polls and then Theresa May calling a surprise UK general election.
With the lesson of uncertainty in mind, how you we arrange your investments to cope with future uncertainty?
The key is ‘diversification’ – the aim being to create a set of investments – a portfolio – that include a range of types of assets that will behave in different ways whenever events occur.
As an extreme example, if you were to invest all of your money in the shares of a single company, the investment risk would be huge. You would do really well if that company prospered and really badly if it encountered difficulties. By investing in several different companies – preferably in different industries and economies – you would reduce the risk. When some shares might disappoint, others could be doing well and therefore the risk would be much lower.
Diversifying your investments
Of course, in worldwide booms and recessions almost all companies in all markets will move together, at least to some extent. It therefore makes sense to diversify into a range of other assets as well as shares, in particular bonds (also known as Fixed Interest or Fixed Income) and cash.
Whilst these asset classes are less volatile than shares, the scope for growth from bonds and cash is normally rather less than from shares – though this is not always the case.
Risk and reward
The more you are prepared to take on risk, the more you should expect to be rewarded for it, at least in the longer term although, again, this isn’t guaranteed. At the core of your portfolio is likely to be equity funds that hold shares in a range of different companies, as well as bond funds that hold government and corporate fixed investments. Remember that other types of assets can provide diversification, such as property funds, commodities and absolute return funds (where the managers aim to provide positive returns in all market conditions, at least in the medium term).Working with you to decide on the right mix of investments to meet your aims and approach to risk is at the centre of what we do.
At Pembroke, we have created an investment process which embraces diversification as one of its core principles. With 8 unique portfolios we can cater for all of our clients’ risk appetites and specialist investment requirements. We now manage £220 million of our client’s valuable capital in the form of ISAs, Pensions, Collectives and Capital Investment Bonds.
Contact us us if you need investment advice.
Please Note: The Financial Conduct Authority does not regulate tax advice. Tax laws can change. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long term investment and should fit with your overall attitude to risk and financial circumstances.
