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  • Writer's pictureNoel Watson

How we invest our clients' (and our own) money

Updated: 21 hours ago


Introduction


Potential clients often ask us how we would invest their money and, perhaps as importantly, why we invest that way.


Our beliefs and principles


Our in-house models have been established based on the following investment beliefs and principles:



Equities (also known as stocks or shares - traded on the stock markets) have traditionally generated the greatest long-term returns, but:




2. Costs matter.


To quote the late, great Jack Bogle, founder of The Vanguard Group,


"You get what you don’t pay for.”


We believe that every £1 you spend to access the markets is £1 less in your pocket.



3. Diversification is important


We diversify across:


  • Asset classes

  • Geographies (Our portfolios do not have a “home bias”)

  • Investing styles


4. Markets are broadly efficient, and beating the market consistently is difficult.


We believe the following is extraordinarily difficult to achieve:





To obtain higher returns, one needs to accept more risk. There are no shortcuts. We ensure you take the minimum risk required to achieve your goals and objectives.



6. Alternative assets (commodities, Private Equity, etc.) add little in the way of risk-adjusted returns to a portfolio.


In contrast to equities (dividend payments) and bonds (coupon payments), commodities do not deliver regular cashflows, and we consider holding commodities to be speculation rather than investing. Private equity lacks the transparency and low fees that are the core of our investing beliefs.




Over time, equities will tend to outperform the other constituents in the portfolio. If there were no rebalancing, the overall portfolio would tend to become more risky as the equity component increased as a percentage of the total portfolio over time.



8. Assets must give acceptable risk vs. return in all stages of the market cycle, which may require excluding certain asset types.


For example, we do not include high-yield (junk) bonds in our portfolios, as they have unattractive risk/return profiles in turbulent markets. Minimising portfolio falls is vital to us and our clients.




During the portfolio construction process, we look to minimise the downsides, including the scenario of our clients finishing work before a prolonged market downturn and withdrawing income from a depleted investment pot. These portfolio "tilts" have historically contributed towards a more sustainable income during challenging times.




We build our portfolios based on around a century of historical market data and typically invest our clients' retirement money with a multi-decade horizon.


What happens over shorter time periods (and yes, we don't consider a decade to be a long time in investing terms) is, therefore, unlikely to change our views on investing. There will be times when certain asset classes in our portfolio will be underperforming the overall portfolio. There is an old saying,


"diversification means always having to say you are sorry"


and it's something we strongly believe in. If all the assets in a portfolio are performing well, this could be a sign of poor diversification.


Portfolio construction basics


The goal of portfolio construction is to create a portfolio that aligns with a client's financial plan and risk appetite. We seek to generate sufficient growth at a level of risk the client is happy with, balancing the conflicting demands of required growth against limiting downsides.

As mentioned above, asset allocation is the key driver for determining the overall risk and return. It involves building a portfolio with various assets to align with your risk appetite, objectives, and investment horizon. Portfolio construction begins with the consideration of growth and defensive assets.



Growth assets


Growth assets (e.g. equities) are included in a portfolio to generate inflation-beating returns, thereby reducing the chances of running out of money over a multi-decade retirement and helping to ensure portfolio sustainability.



Defensive assets


The two main jobs for defensive assets are to dampen portfolio volatility and minimise overall falls in total portfolio valuation during volatile markets. As mentioned previously, some investors might be unable to stomach the falls to which a portfolio containing only growth assets is prone. Defensive assets are carefully chosen to be less likely to suffer significant falls in turbulent markets, thereby limiting the impact on the portfolio’s overall value.



Conclusion


This sounds simple, and this is deliberate. Time and time again, the investment community conjures up complex ideas that seemingly give great returns with little downside, only for the strategies to unravel when the market has a downturn. See the financial crisis of 2007–2008 as an example. We prefer a straightforward, transparent approach and believe simplicity is often better for delivering good client outcomes.


As mentioned above, we believe our portfolios are world-class, built using many decades of historical data and evidence. We are so confident in our approach that it's how we invest our money.


Investing is important. Without sufficient returns from an investment "engine, " the retirement plans we build for our clients are unlikely to succeed.




Want to find out more?


If you want to learn more about our investing approach, please schedule a free, no-obligation call.


About us


The team at Pyrford Financial Planning are highly qualified Independent Financial Advisers based in Weybridge, Surrey. We specialise in retirement planning and provide financial advice on pensions, investments, and inheritance tax.


Our office telephone number is 01932 645150.


Our office address is No 5, The Heights, Weybridge KT13 0NY.


Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.


Although best efforts are made to ensure all information is accurate, you should not rely on this blog for your personal situation or planning.


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.

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