What does our investment process look like? (Part 1)

Category: Investment

In a previous post, we explained the guidelines clients should invest by. We will now start to explain how we put this into practice for clients.

A lot of financial industry talk can lead you to believe there is a “perfect” recipe for what you should invest in. Sadly, you can only know the perfect portfolio of investments after the fact. Nobody can consistently predict what will deliver the best returns over one, ten, or 20 years.

We do not try to create a perfect portfolio. We are far more focused on what we can control, which is not creating a bad one.

The easiest way to ruin a good recipe is to put too much of one thing in it. A good portfolio is no different. We believe in spreading the ingredients of a portfolio prudently. We call these ingredients “asset classes” which are types of investments, including:

  • Shares or “equities” are direct holdings in companies. These generally deliver decent growth but could lose money over shorter periods.
  • Fixed interest investments or “bonds” are loans to governments, companies and other institutions. These offer lower growth but have cushioned portfolios when equities have fallen in the past.
  • Property investments, which in most investable portfolios, means commercial property. These perform differently to equities and bonds, increasing the spread of a portfolio.
  • Cash which ensures there is something within the portfolio you can get your hands on at any time.

We call mixing asset classes “diversification”. This aims to reduce the chance of losing money and increase returns. As alluded to earlier, in the past, a lot of asset classes have moved in diverse ways. Certain ones have gone up when others have gone down. It can be like combining a sweet ingredient and a sour one to get something nice in the middle.

We look at the asset mix of a portfolio before selecting the individual investments.

This is akin to deciding what the recipe is and then buying the ingredients. We do this instead of making a recipe based on what we can find in the fridge.

We do not stop at combining “bonds”, “equities” and “property”. Rather than having a vague recipe of “meat” and “vegetables” we define what the ingredients are. With equities, for example, we look at the different regions such as UK Equities, US Equities etc.

PWSinvest includes ten asset mixes, each seeking higher returns than the last one.

We believe risk and reward are related. So, as each portfolio seeks higher returns, we will become less sure about what could happen over the short term.

For each asset mix, we assess how they have fallen in the past and how best to reduce this. What we also know is the future will be different. Combining assets based only on what they have done in the past is far from a perfect system. Instead, we include a variety of factors, including how well spread the sources of risk and growth are. We also include shorter-term measures of risk and return.

As alluded to before, we pay much more attention to not creating a lousy portfolio than creating a perfect one. We use the services of one of the country’s leading asset allocation sources. They provide us with ten benchmark allocations. They have tailored these to the ten risk levels we use for our portfolios.

When mixing assets, we compare each factor with those of the benchmark portfolios. One factor being worse has a far higher impact than one being better. This means we do not go all out to maximise one aspect of how good a portfolio could be at the expense of others. Instead, our asset allocations benefit from a broad mix.

Our investment committee oversees these asset allocations. They can override them in specific ways, although this is rare.

Having completed the asset mixes, we then select the investments to fill it. Applying this to cooking a meal, when we have a recipe we need to recommend who you should buy the ingredients from. We will cover this in a later post.

We re-run this process every six months. When we do so, we aim to make the portfolio as good as we can be while making as few changes as possible. At the very least, we will recommend the portfolio’s asset allocation is reset to its makeup. We call this a “rebalance”, and this ensures the portfolio stays within its risk profile. This process is not right for all of our clients which is why our client journey looks to identify what type of investor you are before deciding whether our investment process is suitable for you.

We are always happy to discuss this in more detail. Feel free to book in a free no-obligation chat here or get in touch.


Your investment may fall as well as rise, and you may not get back what you put in.





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