Lowes Magazine Issue 121

INVESTMENT SPECIAL

You can see how this can lead to the danger of investors becoming too exposed to one style of investment in their holdings – maybe not even noticing as they build their portfolio. Which is why at Lowes we recommend and practice diversification of holdings in our clients’ portfolios. By holding a range of sectors and investment within those sectors, depending on the goal of the portfolio, we can balance the investment performance as one sector rises and another falls behind, spreading the risk to the portfolio and looking to benefit from the markets as a whole. What also is important is to look beyond the short term, particularly when markets are volatile, as it is in their nature to be, and instead look long term, and to building wealth over time. With our 50 year history of investing for clients, this is where we have found most success for clients. Active fund management This also is why primarily we use collective investments, rather than individual stocks and shares, run by professional investors who actively manage their portfolios of holdings. The current batch of trading Apps in the market may like it to seem easy to ‘play’ the markets, but in fact, to successfully invest across sectors and companies’ year-in year-out takes considerable time and resource. Fund managers are backed by teams of analysts and reams of data and spend much of their time both studying the markets and interviewing companies’ senior management, to find the best holdings for their portfolio’s strategy. As a result, they will have holdings they consider can weather the vagaries of the markets and deliver over the long term. Protecting capital At Lowes we see our task as not just to grow our clients’ wealth but to maintain it too. This is one of the reasons we have developed our expertise in structured products, including launching our own fund of structured investments, the Lowes UK Defined Strategy Fund. One thing we like about structured products, and why we believe they work well in client portfolios, is the diversification of investment type and therefore, the risk. Structured products can protect the capital invested against the usual volatilities of the markets, barring a severe market event, and pre-define what the return will be and when it is received, depending on where the market stands at a set point in time. When blended with an actively managed portfolio of funds, they can be useful instruments when financial planning, both in terms of growing and maintaining wealth. Looking ahead If there is one maxim that applies to all investment it is that all we can know is that we don’t know what is going to happen. The pandemic has proven that with devastating effect on our communities, economies and the investment markets. Hence, when wealth planning there are three pillars we stand by, which are to apply a strategy of diversification, to utilise investment professionals and to have a long-term view. Whatever happens in 2022, holding to those principles will help see us and our clients through whatever the world of savings and investments has in store.

While this will normally push up the interest rates offered by banks and building societies on their deposit accounts, savers should not be lulled into a false sense of security as a result. With the average easy access savings account currently offering just 0.19%, any upward change is expected to be small, doing little to counter the damaging effects of high and rising inflation on the value of cash savings. The financial giant Aegon conducted analysis which shows that £10,000 saved in a cash savings account with an uplift to 0.5% interest, would increase to £10,050 over the course of the year. However, with inflation at 4%, this would be worth £9,663 in today’s money terms, reducing purchasing power by £337. They further calculated that if the money were instead invested and achieved a moderate growth rate of 4.25% after charges, £10,000 could grow to £10,425 over a year. This would be worth £10,024 in today’s money terms with 4% inflation, just maintaining purchasing power. We’ve included their table on the opposite page, showing the impact of 4% inflation on cash savings and modest investments for up to five years. It is clear to see that holding money in cash at the present time is working against the accumulation of wealth. In fact, the FCA, has said it wants to explore new ways of supporting those people who are holding more than £10,000 of investable assets in cash, to help them consider the benefits of moving some of this money into investments. This is to help make their money work harder, with the potential for growth to outstrip the rising prices of goods and services. This is where an Independent Financial Adviser can help. We maintain that aside from a small pot of emergency cash, from three to six months of living expenses, currently, savers are likely to be better off investing in the stockmarkets, through professionally managed investments, as these have the potential to keep wealth growing with returns above inflation. There are no guarantees, of course, but this is where a long-term horizon is important. Spreading risk Long term investors in the markets will know that they can be cyclical in nature, with one ‘style’ of investing or particularly sector taking precedence for a period of time, but then markets change to favour a different style or sector. This has been evident over the past two years. Growth sectors, like technology and online businesses experienced significant growth during 2020 when lockdowns were imposed around the globe and people had to work, shop and seek their entertainment at home – with the valuations of some of the major technology companies rising to new heights. But this made them expensive to buy. Consequently, as approval of vaccines began coming through in November 2020, global investors started looking for companies that were undervalued and hard hit by the pandemic, which were likely to benefit from the anticipated economic recovery. This saw a rise in what is termed ‘value’ investing.

FTSE 100 1 Jan - 31 Dec 2021: FTSE 100 (Total Return) grew by over 18% in 2021

20 15 10

5 0

Source: London Stock Exchange

31/12/2020

28/02/2021

30/04/2021

30/06/2021

31/08/2021

31/10/2021

31/12/2021

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