Investor News Quarter 1 2015 - 6 Common Mistakes Investors Make

Given the likelihood of increased volatility in 2015 due to ending of QE in US, possibility of higher interest rates in UK and US, higher equity valuations, dramatically falling oil prices, and geo-political tensions, I thought it useful to remind valued clients of 6 Common Mistakes Investors Make.


INVESTOR NEWS — Quarter 1 2015 

6 Common Mistakes Investors Make

 Welcome to my first Investor News for 2015. In my previous Investor Report I questioned whether the relative tranquillity the stock markets have experienced in recent times would continue. I felt that the markets would experience a marked increase in volatility in 2015 due to ending of QE in US, possibility of higher interest rates in UK and US, higher equity valuations, dramatically falling oil prices, and geo-political tensions. The New Year has opened up with the EuroStoxx 50 falling by almost 4%, the biggest drop for 3 years. Jan 5th was the worst day for the Dow and S&P500 since 9 October 2014.

Given the likelihood of increased volatility in 2015, I thought it useful to remind valued clients of 6 Common Mistakes Investors Make

(1)    Investing without a clear plan; - Many people neglect to take the time to think about their needs and long-term financial goals before investing. Unfortunately, this often results in their falling short of their expectations. You should decide whether you are interested in price stability, growth, or a combination of these. Determine your investment goals.

(2)    Investing too little too late;- It is time in the market, rather than market timing that builds returns. I do not believe it possible to time the markets, and if you do not place long term investing among your top priorities, and leave future wealth accumulation on the back burner, you may not be able to meet your financial goals.

(3)    Investing too conservatively;- We are all human, and as humans we do not always act rationally. No one wants to appear to be a fool, and as such we suffer from ‘regret aversion’. This is where the anticipation of a future regret can influence current investment decisions. People feel the pain of a loss greater than the pleasure they derive from an equal gain. Remember in order to have an investment that provides the potential for real return (ie return in excess of inflation) some level of risk is required.

(4)    Making emotional decisions; - Investors are often over-confident and get caught up in the hype. We often follow the herd, which can cause bubbles in the markets (e.g recent property bubble in Ireland) and we end up selling out at exactly the wrong moment (ie the low point in the market cycle). We should remember the quote attributed to Warren Buffet ‘be fearful when others are greedy and greedy when others are fearful’

(5)    Meddling with your investment account too often ; - You should be aware of the type of investor you are. Whether you are a risk taker, or a conservative investor, you should ensure that your investment strategy is aligned with your tolerance for risk.

(6)    Putting all your eggs in one basket;- Effective diversification is all about trying to earn the highest return for a given level of risk. That requires combining investments that zig with others that zag in order to achieve the desired levels of risk and return in your portfolio. Not only will a diversified portfolio help you sleep better at night, but also your money may compound at a greater rate compared to a more volatile portfolio with the same average return.

Volatility will cause uncertainty and uncertainty is disconcerting to investors. Remember that long term regular savers should welcome falling markets…these are markets where share prices become discounted. Buying in a bear market can really provide the ‘oompf’ in your investment return. It is not rocket science – by buying in good times and bad, regular long term savers can benefit from gradually rising markets. The key, as always, is that an investor should start with a portfolio that is appropriate for their return expectations, risk tolerance, and investment horizon, and not to panic.

Please find below, as usual, selected my ‘Best Picks’ for investments in each category depending on your Risk / Return profile. I have listed some of my currently preferred funds, according to their risk profile. I am more than happy to provide additional information on these funds, so feel free to give me a call if you want more information. Many of these funds are also available to pension investors on a tax free basis. It is also possible to ‘mix and match’ these investment funds so that risk and reward profiles are tailored to suit your personal requirements.

Each fund is reviewed and rated (from one to five stars, one being poor and five being excellent) across 3 criteria:

•                    Security of capital

•                    Access to capital

•                    Growth potential

Please note that I have changed the measurement of fund performance from a per annum return to a cumulative return as I feel that this is more informative.

Yours sincerely,
Gavin Gilmore
Gavin Gilmore QFA FLIA AITI Chartered Tax Adviser (CTA)
Principal
 

 

Low Risk – Nationwide (UK) 12 Month Fixed Term Deposit Account

Nationwide (UK) are covered by the UK  Financial Services Compensation Scheme. (FSCS) Payments under the FSCS are limited to a maximum of £85,000 per individual investor’s total deposits (or £170,000 if a joint account). Euro accounts will be compensated in sterling based on a euro to sterling conversion rate determined when the compensation scheme is invoked and payment will be made within seven days of the date that the scheme is invoked. Although the rate is the best in the market, it is difficult to get excited about a 1.8% return, when DIRT is at 41%, and for some investors PRSI will also be payable.

Security

*****

Access to Capital

**

Potential for Growth

*

 

Low / Medium Risk – Standard Life Cautious Managed

The fund aims to provide long term growth whilst investing in a diversified portfolio of assets (including equities, fixed interest and property) in order to reduce the risk associated with being solely invested in any one asset class. These assets can be from Ireland and overseas. It aims to be less volatile than traditional Managed Funds, investing a higher proportion in assets that are traditionally less volatile (such as fixed interest assets)

There is active asset allocation within the Fund with an emphasis on capital preservation and focused conservative stock selection. The Fund offers investors exposure to government bonds, high quality equities and cash.

Period (to 31st Dec 2014)

Cumul. Return %

Sector Average %

1 Year

17.75

10.05

3 Year

47.75

21.80

5 Year

59.87

28.63

 

Security

***

Access to Capital

***

Potential for Growth

***

 

Medium Risk – Standard Life Global Absolute Returns Strategies (GARS) Fund

The key to understanding the GARS Fund is understanding the difference between relative and absolute returns. Most investment funds are managed on a relative return basis – a fund manager aims to beat a market index or average fund in its sector. It can achieve this even though returns may be negative.

Absolute return investing is different because the fund manager aims to produce a positive return over specific time frames.

Period (to 31st Dec 2014)

Cumul. Return %

   6 Month Euribor

1 Year

4.95

0.31

3 Year

19.19

1.51

5 Year

34.27

4.34

 

 

 

This fund has a very specific target to produce an absolute return of cash + 5% per annum over a rolling three year period. This Fund will have a lower volatility rating than standard Managed Funds as it employs a more varied approach to investment strategies.

Security

***

Access to Capital

****

Potential for Growth

***

 

Medium Risk – Zurich Life Pathways 5

Pathways portfolios are multi-asset funds containing cash, bonds, shares, property, and alternative assets. The split across each of these asset classes is determined by the risk rating of your fund.

Pathways is an actively managed fund and the investment manager has a mandate to alter the risk level of the portfolio. Shares can range from between 30% to 80%, while Cash holdings can constitute between 0% to 30% depending on the Investment managers outlook. The charging on the Pathways funds is competitive for an actively managed, multi-asset investment fund.

 

Security

***

Access to Capital

****

Potential for Growth

***

 

Medium Risk to High Risk – Zurich Dividend Growth Fund

The Zurich Dividend Growth Fund offers investors the opportunity to gain exposure to a worldwide basket of shares. The simple premise of the investment is to choose large blue chip companies which have a history of paying above average dividends. Many of the stocks are household names with good earnings and whose outlook is believed to be still quite positive. The compounding effect of dividends on investment performance can be staggering.

Period (to 31st Dec  2014)

Culum. Return %

MSCI AC World

1 Year

18.00

19.23

3 Year

68.53

61.96

5 Year

66.79

55.24

 

 

 

 

The performance of the Fund, when considered alongside its peers, is impressive.

Security

**

Access to Capital

****

Potential for Growth

****

 

High Risk – Irish Life Indexed Commodities Fund

This Fund is designed to deliver returns on a broad range of commodities, for example energy, metals and agriculture. The fund is suitable for long-term investors who already have assets such as shares, property or bonds and are looking to invest in something new.

In the past, commodities have provided similar returns to shares for investors. However, commodities tend to perform at different times in the economic cycle. This makes them very attractive because they spread the investment and therefore the risk.

Period (to 31st Dec 2014)

Cumul. Return %

Peer Ave

1 Year

-4.35

N/A

3 Year

-14.53

N/A

5 Year

-1.84

N/A

 

 

 

Although the recent performance of commodity markets has not been stellar, commodities should form part of a diversified approach to investing.

Security

*

Access to Capital

****

Potential for Growth

****

 

High Risk – Fidelity EMEA Fund

This Fund offers exposure to the untapped investment opportunities of companies in central, Eastern and Southern Europe (including Russia), Middle East and Africa. The EMEA Area is an emerging economic region that has a GDP greater than China and India combined. It has experienced a sustained period of economic growth over the last decade three times that of Western Europe and the USA.

Period (to 31st Dec 2014)

Cumul. Return %

Peer Average

1 Year

3.95

N/A

3 Year

33.21

N/A

5 Year

46.09

N/A

 

 

 

The Fund is denominated in the US dollar and so some currency risk / reward is applicable. Returns above are in Euro. However possible high returns come hand in hand with the potential for significant losses and potential investors in this Fund must be comfortable with the risk and reward profile of such an investment.

Security

*

Access to Capital

****

Potential for Growth

*****

 

Alternative Funds – Zurich Life – Gold Fund

Gold has for centuries been revered for its unique blend of near indestructibility and beauty. Gold’s divisibility, portability and significant rarity led it to become a universal currency. This Fund is a unit-linked fund that gives you the opportunity to gain exposure to movements in the price of gold. It is denominated in US currency and so a currency risk arises to the Euro investor. 

Period (to 31st Dec 2014)

Cumul. Return %

Peer Average

1 Year

12.82

N/A

3 Year

-19.96

N/A

5 Year

24.54

N/A

 

 

 

Gold has taken a hammering in recent times, after a meteoric rise in 2010 and further rise in 2011. As investors have become more comfortable with risk, they have shifted away from gold and towards equities.

Security

**

Access to Capital

****

Potential for Growth

****

 

Aviva Life & Pensions UK Property Fund

This Fund is invested in UK commercial properties across the office, retail and industrial sectors. The fund gives investors access to a diversified portfolio of 61 UK commercial properties that are let on long term leases and are actively managed to generate a blend of rental income and capital growth.

Period (to 31st Dec 2014)

Cumul. Return %

IPD UK Benchmark

1 Year

13.80

22.78

3 Year

26.20

39.93

5 Year

36.36

84.18

 

 

 

This Fund is managed by the Aviva Property Team in UK which manage €28.8 billion in assets making them one of the largest property fund managers in Europe. Selling property can be a lengthy process so investors in the fund should be aware that they may not be able to sell their investment when they want to.

Security

**

Access to Capital

***

Potential for Growth

****

 

Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up. Benefits may be affected by changes in currency exchange rates. E & OE. Figures supplied by Financial Express.


Comments (0)


Add a Comment





Allowed tags: <b><i><br>Add a new comment:


Gavin Gilmore trading as Gilmore Insurance & Financial Services is regulated by the Central Bank of Ireland.
All rights reserved. Made by nicework.