Do you have a set of guidelines which help you decide what to invest into?

Category: Investment

We have spent considerable time and effort in building a portfolio construction process sitting at the forefront of the profession.

Its genesis lies in answering a simple question:

‘What should we do to ensure clients have the best chance of investment success?’

This has ultimately led to a series of underlying questions which we will try to answer in this guide. The answers give us clear pointers to what we should focus on to help our clients get successful investment experiences. This is where they can sleep soundly at night while having a good chance of achieving their goals.

Realistically, what we are trying to do is not to make bad decisions. Behavioural finance tells us investors suffer many wealth-damaging psychological preconceptions and biases. Many find it hard to be rational in their decision-making. [i] [ii] [iii] To offset this, we ensured we considered all of the options and the evidence for each when making a decision. Having done so, we came to the following conclusions:

Investing in the global economy is likely to produce positive returns over the long term

  • Capitalism should reward those who take part in it, as it has in the past.
  • Investors mostly take part as owners (via equity investments) or lenders (via fixed interest investments)
  • We rely on this to do the ‘heavy lifting’ when it comes to generating portfolio returns.

Investors taking risks with their money can expect compensation for this in the form of higher returns

  • By risk, we mean the chance of getting back less than what you invest.
  • We view anything purporting to offer high returns while taking a little risk with suspicion as it is likely other threats lurk in the background.

Investment strategies which our clients can stick to are the best ones for them

  • Perhaps the biggest threat to our wealth is us, as human beings.
  • Our emotions and innate biases, of which there are many, encourage us to make poor investment decisions.
  • One of our most important roles as advisers is ensuring our clients do not let greed or fear affect their decision making.
  • Key to this is ensuring the balance between risk and return is right for each client.
  • We also impose a disciplined and unemotional approach to making our own decisions and help our clients adopt this as much as possible.
  • We do not recommend fundamentally different portfolios for someone taking an income.

How much to invest in which types of investments is the most critical decision when building a portfolio.

  • This is the process of deciding how to spread money across “asset classes” including Equities, Fixed Interest, and Cash.
  • We believe in having a broad exposure to global capitalism and spreading money across a variety of asset classes.
  • We believe the asset class mix should maximise long term returns while prudently managing the risks taken.
  • This includes regularly rebalancing the spread of assets back to an appropriate mix, ensuring you continue taking the right level of risk.

Investors should invest in the chosen asset classes using funds.

  • A fund pools together the money of different investors, which fund manager invests on their behalf.
  • They offer a straightforward way to diversify across a variety of different investments, and access to the skills of a professional fund manager.
  • This ensures our clients spread their money not only between asset classes but within them also, maximising their diversification.

Finding managers who will consistently outperform the market over the long-term is difficult.

  • “Passive” funds, who aim to match the performance of a stock market index such as the FTSE 100, offer low-cost exposure to a broad range of investments.
  • “Active” funds, who aim to outperform the market by actively changing the underlying investments, incur higher costs.
  • Research shows the higher costs active funds incur mean an average one is likely to underperform the market.
  • We only select an active manager over a passive one when we have a great deal of conviction in its prospects of outperforming.

We built our own investment solution, aiming to have it best reflect our principles for investment.

  • To build it, we combined academic evidence, the services of some of the country’s leading investment research companies, and our own research.
  • We continuously review it to ensure it continues to be as robust as it can be.
  • We use the process to review the underlying portfolios twice a year and send out recommendations to our clients seeking their permission to make any changes.

In some later posts, we will go into more detail about how our investment solution works.

Do you need some help with deciding how best to achieve investment success? Feel free to book in a free no-obligation chat here or get in touch.


[i] Shiller, Robert J. Irrational Exuberance, (Princeton: Princeton University Press, 2000).

[ii] Shefrin, Hersh, 2000.Beyond Greed and Fear: Finance and the Psychology of Investing

[iii] Zweig, Jason, 2007. Your money and your brain.

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