Investment

Risk

Different people have different attitudes to risk. Some would happily take their life savings to a casino and gamble everything. Others would prefer to keep their savings under the mattress, knowing that it won’t grow but it’s also at no risk of getting lost.

Do you fully understand the levels of risk associated with different investments?

Advanced Investment Strategy by a Nobel Prize winner

At Wealth & Tax Management we use an Advanced Investment Strategy developed by 1990 Nobel Prize winner Harry Markowitz and proven over 38 years of implementation. We start by reviewing the whole market, which comprises some 17,000 funds. We review the performance of each over one year, three years and five years and reject any that have not shown good performance at each of these stages. We’ll also look at their volatility over three years and steer clear of any that seem less stable.

We also look for a good spread of asset allocation, to include cash; fixed interest (e.g. government stocks and corporate bonds); property; and shares.
Your individual portfolio is then created, to take into account your attitude to risk. Typically we build a risk pyramid that looks like this:

High risk investments might yield anything from -100% to +135%.
Medium risk investments might drop by 10% or rise by 27%.
Low risk investments usually grow at between 3% and 9%.

Regular reviews

Over time, the higher profits from the high risk investments need to be reinvested in the medium or low risk groups, or the pyramid becomes a rectangle and too much of your funds will be exposed to higher risk.
Additionally, as your retirement approaches, you will almost certainly want a flatter pyramid i.e. more low risk investments and less in the high risk area.
That’s why we recommend a quarterly review of your investments, to identify what is working; what needs to be switched; and how our knowledge, experience and insight can improve the performance of your portfolio.
To find out more about the Risk Pyramid and how it can be put to work to your advantage, please call us on 01908 260418 or book onto one of our free seminars.