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    Asset Allocation - “Keep Calm and Stick to the Plan…”

    These are words we find ourselves politely saying to our clients and advisers almost each and every time that drama unfolds in the market. It tends to be in response to panic inducing, alarmist headlines telling us to “sell everything” and that the “world’s about to end”. Does this time last year ring any bells? Sticking to the plan is key to ensuring our clients’ goals are met. Any hand-holding we do along the way is all part and parcel of what our clients pay us for. Thankfully the results have been good.

    Staying calm and sticking to a plan is a nice thought, but it makes something of a leap in assuming that there is an actual plan to be stuck to in the first place. Increasingly, when we speak to new prospects we find an absence of such plans. Generally speaking they’ve accumulated holdings in stocks as their wealth, either through income or inheritance, has grown. Usually there’s a valid case for each individual holding, but when they’re all thrown together without any mind to size or diversification the result can be a bit of a toxic mess. Miles Kington perhaps summed it up more eloquently in saying “knowledge is knowing that a tomato is a fruit, wisdom is not putting it in a fruit salad.”

    Setting out a clear plan is key when we take on new clients. Fundamentally, we want to ensure that the plan is tailored to their goals and focused on achieving an outcome. This is something that means something to a client and not something that gets lost in financial jargon. Each outcome or goal is specific to the client with examples being growing a pot to pay for school fees in five years’ time or being able to fund a second home in retirement. Whatever it may be, it is never to outperform some complicated financial index which means absolutely nothing to anyone outside of a small investment community.

    A good plan not only targets a desired outcome but clearly sets out some boundaries and risks. For us, inflation is the key risk and every investment portfolio needs to be designed such that it grows in excess of inflation. We go to great lengths to explain the importance of having a reasonable timeframe for investments. There are (famously) no free lunches out there, but an expertly chosen and blended mix of assets increases the chances of avoiding losses and massively increases the probability of goals being met.


    If not having a plan is the biggest failing we see, it is closely followed by investors trying “to be too clever”. Past success can be a curse here as these types of investors have often had some early success at timing the market; or at least they think they have. We have an exhaustive process which combines both science and art. There are times when it pays to let a bit more wind into the sails or trim them a little, but this should always be done with an eye on the overall portfolio. Swinging the bat wildly can mean missing out on returns or dramatically altering the risk make-up of the portfolio. The stats back it up. As the chart above shows, missing the best ten days of performance in the last twenty years of UK stock market returns would have cost you 170%! In fact, if you’d missed the best thirty days returns then you’d have lost money over that twenty-year period instead of almost tripling your wealth.

    A thorough and sensible investment plan not only allows clients to keep calm before a storm but can also help them to sail through it and enjoy fulfilling their lifestyle goals.


    Rory McPherson

    Head of Investment Strategy

    Psigma Investment Management


    Important Information


    ©2017. This article is prepared for general circulation and is intended to provide information only. It is not intended to be construed as a solicitation for the sale of any particular investment nor as investment advice and does not have regard to the specific investment objectives, financial situation, capacity for loss, and particular needs of any person to whom it is presented.

    The investments contained in this document may not be suitable for all investors. Prospective investors should consider carefully whether any of the investments contained in this publication are suitable for them in light of their circumstances and financial resources. If you are in any doubt whether any of the investments contained in this publication are suitable, you should speak to your Investment Director, or take appropriate advice from an accountant, lawyer or independent financial adviser authorised and regulated by the Financial Conduct Authority.

    The value of investments and the income from them can fall as well as rise. An investor may not get back the amount of money that he/she invests. Past performance is not a guide to future performance. Foreign currency denominated investments are subject to fluctuations in exchange rates that could have a positive or adverse effect on the value of, and income from, the investment. Investors should consult their professional advisers on the possible tax and other consequences of their holding any of the investments contained in this publication. This publication has been approved and issued by Psigma Investment Management Limited. Psigma Investment Management Limited is authorised and regulated by the Financial Conduct Authority with FCA firm reference number 478840.



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