Our industry broadly agrees that the management of asset allocation is a good route to achieving performance in line with an investor’s attitude to risk and reward. What is not agreed is the correct method or intervals for rebalancing. Some suggest rebalancing daily, monthly, six monthly, annually or more: some say give the assets their ‘head’ and let them run. Others say it should be done automatically, mechanically, organically etc etc. There is no consensus on method or interval. We have chosen to effect the rebalance manually and annually; at the same time we check our clients' circumstances and objectives for changes. This is a logical, tailored procedure and certainly in the last 11 years, this has worked well for our clients. It also conforms to decades old best practice.
The counter argument to the above is that a fund manager who immerses themselves in the markets and who can nimbly react to perceived future movements can make/save more value. There is as much evidence to support this argument as there is for the ‘buy and hold’ approach at the other end of the scale. There is no consensus and, at Invest Southwest, we have carefully put in place the first proposition which we believe has a good balance of tailored management vs. cost.
We do have clients who simply feel happier with a much more active/continuous management of both asset allocation and also individual fund/stock selection. For these clients we recommend Discretionary Fund Management and we have a number of partner DFM’s with whom we work dependent on clients’ particular needs. It is perfectly normal to change one’s views as time passes and attitudes do indeed change. To cut a long story short, if you feel that a more active style of management would give you more peace of mind, we can discuss face to face to weigh up the advantages and disadvantages.
That said, as long as your situation, objectives and attitudes remain the same as the last time we met, our core asset allocation offering is appropriate.
Ask yourself, are your investment objectives and attitudes the same? Are you still investing for the same period and the same purpose? Do you feel your attitude to risk and reward remains accurate?
If the answer is yes, then rising and falling markets is entirely in keeping with the asset allocation modelling process; there will be assets within the investment at any given time doing well and doing badly. There will be times when the investment as a whole falls and it is no surprise at all that this is happening now.
If your objectives &/or attitudes have changed, then talk to your adviser who will rework the models and potentially rebalance your investment.
Is it a good idea to withdraw money from your investment? If your investment has fallen recently is it going to continue to fall? Should you take the money out before it falls further?
The answer is the same answer given when the investment was made. We do not know whether any investment is going to go up or down. All we or anyone else knows is that a fund has in the past gone up or down but no one knows about the future.
If any expert says that the market is about to fall or rise then they are speculating. We can find you experts who would express the full range of potential future outcomes ranging from massive gains (good time to buy) to massive falls (withdraw everything). Any commentator you hear who expresses a firm view about future movements could be right or could be wrong.
The beauty of the asset allocation model is that we should not need to worry about market ups and downs because the spread of assets over a long period should ensure reasonable performance in line with your attitude to investment risk and reward. There will always be assets falling within a portfolio somewhere. Our advice would be if your situation, objectives and attitudes have not changed then to continue with the asset allocation recommended.
The Invest Southwest process is to tailor an asset allocated investment model to your personal circumstances and objectives; then rebalance this at least annually. Each fund within your investment is managed continuously by the fund managers; it is only our asset allocation model which is amended annually. If you would like a more immediate, continuous, proactive asset allocation process we could consider utilising a Discretionary Fund Manager with higher fees – talk to your adviser if this appeals.
If you do need all or part of your investment to spend in the near future, then you should consider moving out of fluctuating funds into cash. If this is the case, talk to your adviser. If not, then our advice remains accurate. Use the asset allocated model portfolio to guide how your investment should be spread.
9 February 2018
The views expressed in this blog do not in any way constitute advice and are specific to the date noted. As time passes the facts can change and readers should consult their adviser for up to date advice on any matters covered within the blog. Invest Southwest offers an initial review, which is free of charge, however long it takes. From this we will be able to confirm how we can help and give you an opportunity to decide if you would like us to. Thereafter, we will provide you with detailed recommendations and exact costs. Please note that we promise not to levy any kind of fee unless we can demonstrate a benefit to you.