Investment advice: The importance of the bigger picture

imageEven experienced investors require investment advice when the stock market falls sharply, and this often requires taking a balanced approach, which can still prove to be rewarding over time.

etween July 8 and September 16, 2011, the UK FTSE 100TM dropped by 11pc – potentially having an effect on the value of investments. During such uncertain moments, it can be tempting to cash in your investments to avoid further potential losses.

Yet such drastic action can prove to be a costly mistake – especially if you took out professional investment advice agreeing a long-term investment horizon with your adviser at the outset.

Whether you’ve been investing for years or are considering doing so for the first time, although sudden market falls can be disappointing news in the short-term, it may not impact as significantly on, or spell the end of, your overall strategy.

How to invest

Rather than only having exposure to stocks and shares investments, essentially there are four other types of assets that can also feature in your overall portfolio – cash (deposit- based savings), fixed interest (loans to the Government or companies), property and commodities (e.g. gold). By investing in funds that contain a range of these asset classes, you could reduce the overall risk to your capital.

In practice, this means that when one type of asset is performing less well – such as equities recently – other areas may produce higher returns. This balanced approach means the performance of your investments isn’t solely dictated by stock market trends – as you may enjoy the benefits from the better performing assets to help you achieve your objectives.

Andrew Barker, managing director of Skipton Financial Services (SFS) – the Telegraph Investment & Savings Service’s specially chosen provider – advised: “No one can predict with absolute certainty which asset class will perform the best and when. So investing in a fund controlled by a proactive fund manager can make a sizeable difference to the returns you earn. They can use their experience and expertise to quickly alter the asset allocation of the fund; taking advantage of market opportunities they identify and reduce the impact when other assets underperform.”

Historic market recoveries

That said, the recent stock market volatility may not have resulted in fund managers hastily ditching exposed investments. Instead they may have concluded that, in the longer term, these assets continue to offer potential to deliver robust growth, and so kept hold of them.

While past performance should not be considered a guide to future returns, historically markets have recovered strongly, over time, from significant market crashes. According to Hindsight statistics, in 1987, ‘Black Monday’ saw the TM FTSE 100 (total return including dividends) fall 31pc – but five years later it had grown by 120pc. After the devastating 9/11 attacks in 2001, the FTSE 100TM dropped 11pc; by September 2006 it had risen by 57pc.

Andrew added: “Recent events shouldn’t panic you into encashing your investments; as it will probably result in the realisation of recent losses, while depriving you of the long-term potential gains when markets recover. Time – not timing – is the key to a successful investment strategy.”

Has your investment adviser been in touch?

Despite the importance of maintaining a long-term viewpoint, recent events may have understandably left you feeling concerned. Your adviser should have got in touch to offer an update and reassurance – if they have failed to do so, you should consider looking elsewhere for a better service.

SFS can hold a no-obligation review to help you determine if your current savings and investments are best positioned for your financial needs. They also offer a unique, market- leading investment proposition – Monitored Informed Investing (MII) – where you can be assured SFS will regularly monitor your investments, and keep you informed of their performance through the good and bad times.

An SFS adviser will first help you determine your appetite to risk and reward before, where appropriate (because the funds available from MII are not like a bank or building society account as the value of these investments can rise and fall and your capital is at risk), recommending suitable MII Core Funds which are proactively managed by industry-leading fund managers. SFS will provide you with comprehensive updates on your investments’ performance on a quarterly basis – giving you peace of mind that your best interests are being looked after. Any charges or fees payable to SFS will be discussed with you before you make any investment decision.

Andrew concluded: “If an MII Core Fund we recommend goes on to significantly under perform against its peers for a period, we will even rebate our ongoing charges or offer you a fund switch with no charge from SFS. We firmly believe that we are in it with you.”

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