Should We Expect Stock Market Gains in 2020?

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For those regularly following the news, you will have likely seen many headlines about several financial firms expecting stock market gains in 2020. The Bank of America, for instance, has stated that it expects “higher U.S. yields and a softer dollar”, whilst Barclays has predicted “positive, if modest, returns in major asset classes”. Several market commentators point to 2019 as an (overall) strong year for global stocks and anticipate this upward trend to continue.

As Financial Planners, we have a careful balance to strike. On the one hand, we don’t want to over-exaggerate some of the risks posed to investment portfolios in 2020. On the other, we would caution against much of the over-optimism exhibited in the press. There are reasons to be positive, and reasons to include defensive assets in your portfolio.

2020: reasons to be sceptical

One should always be wary when it seems that all financial “experts” are converging around a prediction about what will happen in the stock markets. Remember, in the final quarter of 2018, the US and global stock markets missed their targets considerably, with almost £4.8tn wiped off the stock market. Following this steep decline, professional investors overwhelmingly predicted that 2019 would see performance continue downwards. As mentioned above, this turned out to be false. Most of the major indexes (e.g. the S&P 500 and FTSE 100) rose respectably, or even by as much as 27%.

At the moment, a large number of professional investors seem to be “riding on the high” of 2019, expecting strong growth from riskier investments such as US tech companies. However, there are good reasons to avoid impulsively piling all of your capital into stocks at this time, avoiding other asset classes. Including at least some level of protection (e.g. defensive, fixed-income assets) is important to help shield your portfolio in case 2020 does not transpire as these optimistic forecasters expect.

Here are just a few reasons to be sceptical about sky-high stock market gains in 2020:

  • The US-China trade war, which is taking centre-stage to many macro forecasts. For the last 18 months, these two major powers have been imposing tariffs on each other’s goods, escalating from $34bn US tariffs in July 2018 to $200bn in May 2019. Despite the welcome news that a tentative “phase one” agreement has been reached, tariffs will stay in place for many goods for the time being and it remains to be seen how this will impact various industries (e.g. manufacturing) and the wider global economy in 2020.
  • The UK’s withdrawal from the EU, currently scheduled for 31st January. The possibility of a “no-deal” Brexit still appears to be on the cards, with Prime Minister Boris Johnson insisting on not extending the time to agree on a new UK-EU trade deal beyond December 2020 (whilst the EU claims this is not enough time).
  • Increasing tensions in the Middle East, which have the potential to dampen sentiment and potentially lead to higher Oil prices.

2020: reasons to be optimistic

It is not all bad news, however. In its assessment for market outlook in 2020, Deutsche Bank argues that periods of high stock market growth (e.g. 2019) are usually followed by modest growth, not steep falls. Whilst this does not guarantee, we will avoid stock market volatility or decline in 2020, it should help caution anyone against spiralling into panic.

Moreover, remember that almost half of the world’s global capitalisation emanates from the US, so investors should take some encouragement from the fact that America’s economy remains quite strong as we enter 2020. GDP is still growing (although more slowly than in some previous quarters), and fears of a US recession seem to have lowered at the time of writing.

(The US-China trade war remains a concern for investors. However, recently there do appear to be some signs of progress. In the latter part of 2019, China agreed with the US to roll back some of its tariffs, totalling as much as £280bn on its imports (e.g. electrical appliances).)

Another interesting development across the world is that many governments are now regarding monetary stimulus as decreasingly effective. The result? Political leaders are starting to turn their attention more towards fiscal expansion. Prime Minister Boris Johnson, for instance, was recently elected in December 2019 partly on a platform to increase public spending (e.g. £34bn more for the NHS per year by 2023-24). Although it is not guaranteed, higher public spending does tend to accompany higher inflation, which benefits shares over fixed-income assets such as bonds.

At this point, you might still feel like you have no certainty over what will happen to stock markets in 2020, and that’s the point. Nobody has a crystal ball on these matters, and so it’s vital to ensure your portfolio is well-constructed and prepared for different scenarios. Diversifying appropriately across different funds and asset classes will be key, as will following good investment practices such as investing for the long-term and avoiding impulsive decisions.

If you need to discuss your investment strategy or financial plan with an experienced member of our planning team at FAS, please give us a call.


A Short Guide to Bond Investing in 2020

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With Brexit now looking almost certain to go ahead on 31st January 2020, many people are wondering what the impact might be on their investments. For those concerned about possible volatility or decline, it can be tempting to consider other, less “risky” asset classes in a preemptive attempt to try and shield your portfolio.

Whilst we would caution against making rash, ill-informed decisions about re-constituting your portfolio, it can certainly help to be aware of how fixed-security asset classes work, and how they might be appropriate following discussion with your financial planner. In this short guide, we will be sharing a brief outline on one of these types of securities (i.e. bonds), and how they might be important in 2020.

An overview of bonds

Bonds are actually quite a simple concept. It’s a similar dynamic to when you go to your local bank branch and ask them for a loan. If they agree to give it to you (say, £10,000), then you will be obliged to pay this amount back over an agreed period, with interest.

With bonds, however, you (i.e. the investor) are the loan provider and it might be a company, or government, which agrees to borrow money from you. Specific names are often given to different types of bonds. For instance, UK government bonds are often called “gilts”, whilst “corporate bonds” refer to bonds issued by companies to raise capital.

Bonds in 2010, and looking ahead to 2020

Many market commentators have noted that the 2010s saw a lot of interesting behaviour in the bond markets. In 2016 following the Brexit vote, in particular, investors witnessed government bonds across the world (possibly as much as 30% of the total bond market) produce negative yields. A similar thing happened in 2019 during the summer, where $17trn-worth of government and corporate debt produced negative returns. Historically speaking, this is quite unusual and it happens when an investor (e.g. you) buys a bond for more than its face value. If the interest due over the lifetime of the bond amounts to less than what you originally paid for it, then it produces a negative yield, effectively translating into lost money.

Looking ahead to the 2020s, however, many market commentators are speculating that this era of ultra-low yields may be coming to an end. Sweden has recently abandoned negative interest rates, for instance, recognising that they cause issues for the wider economy. The final quarter of 2019 saw steady growth in bond yields. However, it’s important for financial planners to advise clients that speculation is always dangerous. Nobody knows what will happen in the UK and the global economy in 2020. Much hinges on the precise form Brexit takes, and whether the EU and UK are able to negotiate a satisfactory trade deal and avoid a “no-deal” scenario.

Why include bonds in a portfolio?

Every investment portfolio will, of course, be different depending on your financial goals, interests, stage of life and risk tolerance. That said, bonds are often a feature within a portfolio recommended by a financial planner, to a greater or lesser extent.

The fact is, risk is built into the nature of money, wealth and investing. Opening yourself up to the possibility of greater financial reward usually means accepting a greater level of risk. Holding cash savings is typically seen as one of the lowest-risk options available to you, but in today’s world of low interest rates, it usually results in capital erosion over time (once inflation is taken into account).

Bonds and other fixed-interest investments are commonly seen as the next step up from cash. Investing in UK government bonds (gilts), for instance, is likely to be less risky than investing in company stocks within a fund, yet the potential returns are also likely to be lower.

Where bonds can really add value is by acting as a “buffer” within your portfolio. Bonds are often classed as “defensive” assets because they tend to experience less volatility than other assets, such as property or stocks. They are also deemed less risky because companies tend to pay out income to bonds before they pay out to shareholders. Bond payouts take particular priority over shareholders if a company goes bust.

Suppose the UK experiences an economic slowdown. Quite often, this tends to lead to lower inflation, which can make bond income more compelling. Such a slowdown also can lead to lower company profits and return on the stock market, which can push up the value of bonds even further. Moreover, if the stock market takes a dive then fixed-income securities such as bonds can provide a powerful hedge within your portfolio, shielding you until market recovery.

These can all be powerful reasons to consider including bonds within your portfolio, but it’s important to understand the downsides too. Remember, if the market believes interest rates are likely to go up then this tends to result in a reduction in the value of existing bonds (which have lower rates). On the other hand, if market expectation is for interest rates go down then any bonds you hold are likely to go up in value.

If you are interested in discussing your savings or investment strategy with one of our financial planners at FAS, then please don’t hesitate to contact us to arrange a meeting.

This content is for information purposes only and does not constitute investment advice or financial advice.

What Is Ethical Investing?

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It’s probably fair to say that in 2019, environmentalism is moving increasingly into mainstream public consciousness. People are now more concerned about how their behaviour, habits and even investments are impacting on the planet. To note just a few developments:

    David Attenborough released his “Climate Change: The Facts” documentary earlier this year, which had a huge impact on bringing the topic to the fore in public discussions.
    Extinction Rebellion (an activist movement advocating rapid, far-reaching measures to combat climate change) has run protests and rallies across the country, throughout the year, to raise awareness and influence politicians on climate change.
    More and more celebrities (such as Prince Harry) are being scrutinised by the media over their use of private jets, due to the carbon footprint they produce.

Whilst opinions may vary on the above events, demonstrations and productions in question, undoubtedly more British people are coming to accept the broad scientific consensus about humanity’s impact on climate change, and want to do something about it. Indeed, many are even asking how their money and investments can be put to responsible use in this regard.

This is where our Financial Planners can often start to talk about ethical investing with certain clients. Other broad, related categories on this subject include “ESG investing” (Environmental, Social & Governance) and “social impact investing”.

Here, we’ll be outlining what “ESG investing” looks like and what it tends to involve. Please note that this content is for information and inspiration purposes only. It should not be taken as investment advice or financial advice.

What Is ESG Investing?

There is no doubt that different companies have a varying impact on the planet and human society. A financial planning business such as FAS, for instance, is a service-based business. It does not have a supply-chain in the same way as a car manufacturer. Whilst both companies will produce a carbon footprint, the latter is likely to have a much greater direct impact on the environment due to the size of the business and the nature of their core product.

ESG investing is an approach to investing which factors in the impact of different companies and other assets upon our physical environment, such as their approach to pollution and consumption of natural resources. It also factors in the governance of these companies (e.g. their approach to anti-corruption and gender diversity on the company board), as well as their impact on the society they inhabit (e.g. wage fairness and corporate social responsibility).

Is ESG Investing New?

It might surprise you to learn that ESG investing was quite a “fringe” approach to investing until recent years, as investor demands have brought it increasingly into the mainstream of investment management solutions.

There are many reasons for this, but among them include the fact that investor demographics are shifting. “Millennials” are growing as a target market of investment firms, and this group, in particular, tends to be very environmentally-conscious.

There is also the fact that many companies themselves have experienced considerable internal change with regards to beliefs about their ESG profile, as mounting evidence about climate change has accumulated over time.

There is also now increasing evidence to suggest that, with a viable strategy, ESG investments can offer investors attractive returns. This is gradually supplanting a common, previous belief widespread in the sector that ESG generally provides lower returns than non-ESG investments.

How Do I Start ESG Investing?

The important thing to recognise with ESG investing is that it is broadly intended to achieve two primary goals, simultaneously:

1/. Meaningful returns for the investor;
2/. Positive impact on the environment, governance and society.

To a degree, these two goals are in constant tension. Sometimes investors are tempted to sacrifice investment performance in the hopes of producing a positive sustainable impact. Whilst this is noble, it achieves little for your financial goals to lose money over the long term. Investing and charitable giving are called two different things for a reason.

On the other hand, there is also the temptation for investors (and fund managers) to chase after investment opportunities with a poor or dubious ESG profile, but which might offer more attractive potential returns. The more you go down this road, the more you dilute the definition of ESG and eradicate the second goal, above.

A good Independent Financial Planner will be able to help you navigate the world of ESG investing carefully with these two goals (as well as your own financial goals) in mind.

For some people, they might want to reconstruct an existing investment portfolio gradually, to include more ESG investments over time. This can help to reduce instability and risk in the portfolio, although some people might find such an approach in tension with their conscience.

Other people reading this article might be nearer the beginning of their investing journey and would like help setting up a portfolio which reflects their “ESG values” to a high degree, from the very outset. One of the challenges here will be establishing your financial goals and selecting an appropriate range of investments which can be justifiably labelled as “ESG”, and which also achieve an appropriate level of diversification, risk-minimisation and potential of return.

Final Thoughts

We have only managed to scratch the surface of ESG investing here in this article. However, we hope it has given you enough information to inspire you and help gather your thoughts on this increasingly important topic.

We understand some people will want to act quickly out of intentions to “make a difference”. Whilst this is completely understandable and noble, it is also important to look after yourself – and your loved ones – by not putting your capital at unnecessary risk.

If you are interested in discussing an ESG investment strategy with us, please do get in touch.

3 Secret Weapons to Boost Your Retirement Income

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In recent years, pension savers have faced a number of changes in the tax landscape. On the one hand, most people now have a lot more flexibility and control over their pension savings since the 2015 Pension Freedoms, which allows you to start drawing from your workplace and/or private pension(s) from the age of 55. You are also no longer required to use your pension savings to buy an annuity, but now have other options available such as the likes of a ‘drawdown’ arrangement.

On the other hand, pension savers also arguably face new restrictions in respect of tax reliefs. For instance, in 2006-07, it was possible to commit up to £215,000 for the tax year into pension savings. Today in 2019-20, the Annual Allowance is significantly lower at £40,000, or up to your yearly salary – whichever is higher.

This, coupled with the ISA savings limit of £20,000 per year, is causing many higher earners in particular to question whether there are other tax efficient avenues open to them to save for the longer term and retirement. For those in this position, there are fortunately a range of options available.

In this article, we’ll be taking a look at three in particular: Venture Capital Trusts, Enterprise Investment Schemes and Seed Enterprise Investment Schemes.

Below, you will find a brief overview of each one and a short summary of some of their respective pros and cons. Please note that this content is for information purposes only and should not be taken as financial advice. To receive tailored, regulated financial advice about your own situation please speak to one of our Financial Planners.

1. VCTs

Venture Capital Trusts (VCTs) can be a compelling option for those clients with a higher risk appetite who are interested in investing in small businesses and who want to take advantage of some attractive tax reliefs.

A VCT is a company which typically trades on the London Stock Exchange (LSE), and its main purpose is to achieve growth and income by investing in a portfolio of unquoted businesses. The businesses are selected by the fund manager or team, who will be experienced in finding strong positions for the portfolio.

One powerful reason to consider a VCT is the 30% Income Tax relief which you can claim on the value of your investment. Two important conditions are that you can only invest up to £200,000 per year into VCTs, and you must hold shares for 5 years to retain the tax relief.

So, suppose you invest £10,000 of capital into a VCT, you would receive Tax Relief of £3,000 (i.e. 30%) assuming you hold the investment for the qualifying period, and pay this much Income Tax in the Tax Year in question.

There are drawbacks, however, which you need to be aware of. First of all, there are fees which you will need to pay for the management of the VCTs. These can be around 2%-3% per year, and this naturally eats into your investment returns. Secondly, you will need to factor the 5 years holding period into your financial plan, which might not work for everyone.

2. EIS

The Enterprise Investment Scheme (EIS) is often confused with VCTs, as they can sound very similar. However, there are some important differences – not least being that the former is a Government Scheme, whilst the latter are quoted companies.

Similar to VCTs, investing in EIS-qualifying companies allows you to claim back 30% of your investment as Income Tax relief. However, one significant difference is the treatment of dividends. VCTs allow you to generate an income via tax-free dividends, which can make them an attractive supplementary tax-free retirement income source.

One of the crucial advantages of EIS investments is that they are exempt from Inheritance Tax, provided the investments qualify for Business Property Relief (BPR) and provided you have owned them for at least 2 years. In addition, whilst you can only commit up to £200,000 per tax year into a VCT, you can put up to £1m per year into EIS-qualifying companies. Indeed, you can even commit up to £2m provided the EIS companies qualify as “knowledge intensive”. Regardless, you must hold EIS shares for at least 3 years to retain the tax relief.

However, you should also be aware that the EIS can carry a higher level of investment risk than VCTs due to the nature of EIS companies. In general, EIS-qualifying companies tend to be smaller with a lot more growth potential, but also carrying a higher risk of failure.


The Seed Enterprise Investment Scheme (SEIS) is similar to EIS, but with some important differences. Notably, you can only commit up to £100,000 per tax year into SEIS-qualifying companies or funds, but you can claim 50% Income Tax relief on the value of your investments.

Similar to the EIS, you must hold the shares for at least 3 years to retain tax relief and any dividends are also taxable (unlike VCTs). One important drawback to be aware of with SEIS is that companies that qualify for SEIS relief need to be very early stage and therefore the risks are higher than EIS qualifying investments.

Final thoughts

VCTs, EIS and SEIS all offer some attractive benefits to especially higher rate tax payers which are well worth considering within your wider financial plan, especially as you approach retirement. However, their nature as a higher investment risk means that you should consult a Financial Planner about how to integrate these into your financial plan, prior to making any big decisions. If you would like to speak to us about this, then please do get in touch.

Market Turbulence: Should I Turn To Gold?

By | Investments

Gold was the currency of states and countries across the world throughout history i.e. Byzantium used a gold standard over 1,500 years ago to support its empire and for centuries leading up to the 20th Century, it was the globe’s reserve currency.

Given its longevity, many people consider investing in gold as a “safe haven”, particularly during periods of stock market volatility. In the days following the 24th June 2016 Brexit referendum result, the FTSE 100 declined by 8% but the price of gold continued to rise, as it has done since April 2016.

Yet investing in gold, whilst it may sound glamorous and “safe”, comes with its advantages and disadvantages, which are important to be aware of before committing to this type of investment.

In this short guide, we will be sharing some of these benefits and drawbacks with you. Please note that this content is for information purposes only and should not be taken as financial/investment advice.

Pros: Why people turn to gold

Gold is tangible and “feels real” to us – similar to property. This (in addition to the prestige and attraction of jewellery) makes gold an appealing investment, compared to more intangible assets such as stocks and bonds.

As mentioned, gold can be a compelling choice for worried investors since its value is often not linked to other assets. During a decline in the stock or property markets, for instance, the value of gold might hold steady or even rise in value (since people often turn to it during market turbulence). Other advantages of investing in gold include:

Liquidity. Property and gold are both “tangible” assets which you can see and touch. However, the advantage of the latter is that it can be bought and sold fairly quickly, which tends to be harder to achieve with property. Virtually anywhere across the globe, you can convert gold into cash with relative ease if you choose to do so.

Diversification. Your investment portfolio should contain a range of asset types and classes in order to spread the risk. This might include a range of stocks, bonds, cash and property investments. Adding another asset type such as gold can help diversify your portfolio even further.

Steady value. Over time, gold tends to retain its value due to the limited amount of gold available around the world. This can make it an attractive hedge within an investment portfolio, especially during times of rising inflation.

Cons: Reasons not to commit everything to gold

Gold offers lots of advantages to an investor but most Financial Planners would caution against leaning towards gold investments for the following reasons:

Bubbles. We mentioned earlier that many people turn to gold during times of market volatility. This can cause the price of gold to rise, but if too many people rush to gold as a haven then it could lead the commodity to become overpriced. It’s then only a matter of time before a price correction happens, which could be harmful to your portfolio.

Insurance & storage. You may choose to buy gold coins or bars yourself and you will obviously need a safe place to keep them. In all likelihood, you will also need to take out insurance. All this added expense erodes the value of your investment returns.

Lack of income. When you invest in companies, it is possible to generate a “passive” income in the form of dividends. Similarly, when you invest in property such as a Buy to Let, you can also create an income stream via rent from your tenants. Gold, on the other hand, does not generate income (unless you buy shares in a gold producing company).

Returns over time. If you are hoping to invest in an asset and hold it for 20 or 30 years in the hope that it will generate a long-term return, then gold is at a disadvantage compared to other assets. As mentioned earlier, gold tends to retain its core value over time whilst stocks/equities such as the FTSE 100, historically, have risen considerably in value. Whilst gold can be a useful hedge, it is not really a great wealth creator.

Ways to invest in gold

Direct purchase. This is the “old fashioned way” of investing in gold – buying physical gold coins or bullion. You then hold and store these yourself, potentially to sell later.

Gold company shares. You could buy shares in gold mining companies. The share prices will be strongly influenced by the price of gold as well as the success of the individual companies.

Gold options/futures. It is possible to invest in gold via financial derivatives, using call and put options. This is quite a risky strategy, however, as most people try to “time the market” by purchasing a “put” when they anticipate a drop in the price of gold, or by buying a “call” if they think it will go up. This is very hard to predict accurately.

Gold ETF. An exchange-traded fund (ETF) behaves a bit like individual stocks, trading on an exchange. A gold ETF will hold derivative contracts in gold, which are, themselves, backed by gold.

Final thoughts

Everyone’s financial situation and investment goals are different, so it’s unwise to make blanket recommendations regarding the position that gold should take within your investment portfolio. That said, it would be fair to say that, for most investors, gold is likely to occupy a small part of a wider investment strategy, if it is present at all.

What Difference can a Diversified Portfolio make?

By | Investments

Investing can be an incredibly risky business if you do not know what you are doing.

The story of a Chinese farmer who invested his life savings in a local mining company illustrates the point perfectly. He lost $164,000 when the company failed. Not only that, but he went into debt to buy $1 million more stocks to recoup his losses.

Most of us can see the problem here and think we would never do something so foolish as to put all of our eggs in one basket. Yet many people do make investment mistakes, sometimes against their better judgement and sometimes without realising it.

This is where a diversified portfolio can help protect your wealth. By spreading your money across multiple asset classes and investment types, you can mitigate your losses whilst maintaining a steady level of growth over the long term.

Diversification: An Example

The 2008 financial crisis might seem long ago to some people. For many investors, however, the pain is still fresh. Some people lost as much as 30% of their portfolio value in one year.

Yet this period of recent history provides a valuable lesson about the importance of diversifying your investments. Those investors with bonds in their portfolios, for instance, fared the storm much better than those with fewer bond investments and higher levels of (UK) equities.

Some portfolios with over 60% (UK) equities lost over 20% of the value of their portfolio between the end of 2007 and the beginning of 2009. Those with over 60% bonds might have only made a minimal loss – or even none at all.

The point here is not to try and argue that it is better to invest in bonds rather than stocks. Remember, past performance is no guarantee of future returns. Also, each investment type brings its own potential risks and rewards. Stocks tend to be higher risk with higher potential return, whilst bonds tend to carry lower risk and lower potential return.

Rather, the point is to show the importance of diversifying your investment portfolio. Had an investor put all of their money into (UK) equities during the 2008 financial crisis, their portfolio would have almost certainly taken an unbearable hit. However, by having investments spread out across different kinds of stocks, bonds and other assets, you lower your risk levels and minimise potential damage.

A Diversified Portfolio: Common Components

Domestic equities

Equities are sometimes also called “shares” or “stocks”. Here, you buy a degree of ownership in a company or set of companies in order to gain an investment return (e.g. on their profits). For the British investor, domestic equities refer to your investments in UK companies and typically form an important part of your portfolio.

At the time of writing, large numbers of UK stocks have been sold off in light of Brexit. This might sound like a bad thing for investors, but it could actually present them with some new opportunities to make a return.

However, the uncertainty surrounding Brexit should serve as a warning to not put all of your investments into one country’s equities, where they will be subject to the health, nature and effects of that single economy.

International equities

One way to diversify the equities in your portfolio is to buy shares in companies outside the UK. For instance, you might invest in funds which buy shares in the USA, Western Europe or even across the world. Certain funds might focus on a particular region such as technology companies in East Asia.

International equities can be a great way to spread your investment risk and leverage opportunities outside of the domestic market. However, they can be subject to currency fluctuations which can impact the value of your invest – even if you make a return. So, once again, it is a good idea to spread your investments out rather than just invest in these equities.


Bonds are essentially a kind of “IOU” and are generally seen as less-risky than equities. For instance, you can buy a UK government bond and you be fairly confident that they will eventually pay the principal back with interest.

Due to their lower level of investment risk, bonds generally provide a lower investment return compared to equities. Therefore, they offer less growth potential for investors looking to expand their wealth, but are an attractive “insurance policy” against market dips and are a useful tool for investors to protect wealth as they approach retirement.


Quite often a portfolio will also include investments in property in the UK, and possibly abroad. One common approach is for investors to put some of their money into REITs (Real-Estate Investment Trusts), which allows them to buy commercial property using pooled funds with other investors.

REITs and other real estate investments can offer some strong returns, but they also carry their own risks. Looking at Brexit once again, the uncertainty here has raised a lot of questions about the future of the UK property market and house prices. So, the rule of diversification applies.

Constructing a Diversified Portfolio

When building a diversified investment portfolio, you should consider the tax efficiency of your investments, as well as some of the popular investment platforms. However, building a solid investment portfolio which meets your needs and appropriately diversifies is not easy.

At FAS, we ensure you make informed choices about how to invest your money whilst taking into account charges and taxation, as well reducing investment risk without necessarily hampering growth potential!

Better to stay in the Market than try to time it

By | Investments

Markets can be intimidating beasts. They go up and they go down. Some people profit through their investments whilst others lose money.

How is an investor supposed to approach this picture? Should you put your money into markets given the risks involved? If so, how much should you commit and what should you invest it in?

Moreover, when should you put it in and when should you take it out? Should you withdraw your money as markets are falling or during periods of volatility to try and curb your losses?

This latter question is the one we want to focus on here. This is known as “timing the market” and, generally speaking, it is a bad idea.

It might seem counter-intuitive, but it is ultimately better to stay in the market for a long period of time rather than trying to time it. Here’s why:

The Difficulty of Prediction

If you are already investing, remember why you invested in the first place.

It might be because you wanted to build up enough money for a comfortable retirement one day. Markets can be a great way to achieve that. Consider, for instance, that equities in the UK have grown by 5% on average each year since 1900.

However, you likely knew that it wouldn’t be plain sailing when you first started investing. The very nature of markets is that they stop and start. They bring short-term risks but also the potential of longer-term growth.

Consistently predicting the short-term dips and troughs is incredibly difficult, if not impossible. Think about the number of variables involved leading up to a market crash or substantial rise. There are human decisions made within governments and companies, which themselves are very hard to anticipate. Then there are local and world events which come down to bear.

Trying to see the near-future in this ever-shifting puzzle (where new pieces are constantly thrown into the mix) is clearly beyond normal human capacity, although this does not stop lots of stock brokers from trying!

It is very hard to see a market fall coming and pull your money out to protect it in time. In fact, trying to time the market in this way can really cost you both in the short and long term…

The Cost of Getting it Wrong

Consider for a moment what might happen if you missed some of the best days on the stock market because you pulled your money out at the wrong time.

One study actually tried to demonstrate this for the FTSE 250. It showed that if you invested £1,000 in 1987 and left it there for three decades it would be worth £24,686.

However, if during that time you put your money in and pulled it out, missing the FTSE 250’s best 30 days, then the money would be worth £6,878. That’s a difference of £17,808.

When you spread out the annual return over the thirty-year period, you would have seen an 11.3% return if you had kept your money in the FTSE 250.

Had you missed the best ten days it would be 9.3%. Had you missed twenty of them, it would be 7.9% and if you missed all thirty days it would be 6.6%.

These percentages might seem small, but over thirty years the difference amounts to a lot of money due to the nature of compound interest. There might be just 4.7% between 11.3% and 6.6%, for example, but remember that represents £17,808 in the above scenario.

In other words, rather than trying to time the markets it is almost always better to stay put and aim for longer term growth.

Should I invest now?

The answer to that question depends on your own financial circumstances. At the time of writing, it might be tempting to think that you should not invest right now given uncertainties surrounding the U.S.-China trade war and Brexit.

However, this is not necessarily a reason not to invest. Historically, some of the best investment returns have happened during times of great economic challenge.

One sensible way to protect yourself from short-term market dips and shocks is through “pound cost averaging”. Very simply, this means that you put your money into the markets gradually rather than in one bulk.

So rather than putting £20,000 straight away into stocks (which might then suddenly go down) you could put £2,000 into stocks over a 10-month period, reducing your risk exposure. It might mean that you actually end up making a better return in the long run, because you could end up buying more stocks at a cheaper price during a market dip. If these then rise in value down the line then you actually will have gained a higher investment return because of the dip. Conversely, of course, you could lose out on gains if the markets continue to rise during your phasing period.

Investment Tips

Unfortunately, you cannot completely shield yourself from short-term investment risks and market falls. However, there are some tactics you can use to increase your chances of gaining a higher investment return over the long-term:

    Diversify your investments across a range of stocks, funds and asset classes. That way, if one company or market falls your other investments will help balance the risk.
    Invest sooner rather than later. Remember the power of compounding. £10,000 invested over ten years produces about £16,288 at a 5% annual return. Over twenty years it gives you about £26,532. Over thirty is gives you about £43,219. Over forty years, you are potentially looking at £70,399.
    Take advantage of ISAs and other tax allowances to make sure you keep as much of your investment returns for yourself as possible.
    Stay in the market. Remember the potential costs of missing the best investment days because you incorrectly timed the market.

Diversification is Key

By | Investments

What makes gambling different from investing? If pushed for an answer, we would say that one of the key differences is “diversification.”

In other words, the former is primarily about rolling the dice on one hoped-for outcome, based mainly on chance. The latter, however, involves spreading your money out across many different asset types and classes which you reasonably expect to grow.

Images can sometimes present investing in a way which makes it look like gambling. Many of us are familiar with the hectic scenes of traders shouting and running around on the floors of the stock exchanges, buying and selling manically.

Prudent investing, however, is far removed from this image. Rather than putting all of your money into the fate of one company (such as Facebook or Amazon) and hoping it grows, you minimise your risk by putting your money into many different investments.

This way, if one or even several of your investments fail, your other investments should help carry you through and minimise your losses.

An example of diversification in action

When you look at different countries, you may notice that certain countries seem to be more vulnerable to economic shocks than others. This is partly because, like investors who do not spread out their investments, these countries are putting their “economic eggs” in one basket.

For instance, many countries hinge their economies on an important resource which they can produce and trade – such as oil, or coffee. When these commodities do well, their economies boom. When demand for the commodity falls, however, it can cause a huge deficit.

This is one reason why countries often seek to diversify their economies, so they are not reliant on one particular commodity, product or service in order to grow (e.g. manufacturing). Similarly, a wise investor will recognise that by diversifying their investments, they protect themselves from investment “shocks” whilst continuing to benefit from positive performance from other assets.

For instance, suppose you have two investors. Investor A has an investment portfolio (i.e. a set of investments) comprising 100% stocks (i.e. shares in various companies). Investor B, however, has a portfolio comprising 50% stocks and 50% bonds (we’ll come onto this later).

When the stock market experiences a dip or shock, which investor should fare better throughout the storm? Investor B should lose less money than investor A, because his/her bond investments should continue to deliver an investment return even as his/her stocks decline.

Different asset types

Another analogy sometimes used for diversification is the modern military.

Advanced military nations such as the USA, UK, France and Russia all have a range of defence assets at their disposal including infantry, mechanised vehicles (e.g. tanks), air power, naval units and cyber warfare technology.

These different military “assets” exist not just to counter different threats on the battlefield within a theatre of war. Each asset also exists in order to support the other. For instance, armoured vehicles and airpower assets are used to protect infantry during assaults.

Investing can also be conceived in a somewhat similar way. Just as military assets support one another, investment assets can “cover” and “carry through” other assets which might struggle on their own within particular market contexts. For instance, when your commodity investments are declining in value it might be your stocks which keep your investment portfolio moving forward.

Let’s take a quick look at some important asset classes you can include in your portfolio…


One of the most familiar types of investments, cash investments, are usually seen as lower risk but also tend to carry a lower investment return.

For instance, up to £85,000 of your cash in recognised UK Building Societies and Banks will be protected by the Financial Services Compensation Scheme.

However, many cash investments deliver a poor investment return due to low interest rates, which are largely eclipsed by inflation.


Sometimes these are called “equities”, and they refer to the stake(s) you have in one or more companies. For instance, you could invest directly in the shares of one company (which is very high risk). Or, you could put your money into an “investment fund” (e.g. a Unit Trust) together with a range of other investors. This fund would then invest this money into a collection of select companies. This is lower risk, because if one company in the fund declines or fails the others should help to keep the overall value of the fund growing.


Many of us are familiar with the idea of house “flipping” – which involves buying a house and later selling it at a profit (often after a period of household improvements).

However, other lower-risk investment opportunities exist when it comes to property. For instance, you might invest in property funds – which are similar to the “share” funds described above, except in this case the investment money is put into residential or commercial property.

Property can be a great investment, but it does carry risk and you also face the issue of your money not being easily accessible once it is invested into property. If you need the money quickly, you might need to wait a lot longer than you would have otherwise liked.


When you need money from the bank you can sometimes get a loan. This involves the bank giving you money provided you pay it back over time, with interest (so they make a profit).

In a similar way, you can “lend” your own money to companies and governments through bonds. So, if you buy a UK government bond you are effectively loaning money to them.

The idea is that, over time, you get the principle back as well as interest payments. These investments are generally seen as lower risk (particularly UK government bonds because they have a reputation for paying people back). However, the more reliable the bond-issuer the lower the investment return tends to be, because the risk is lower.

Bonds are usually a vital part of an investment portfolio, because they provide a solid investment foundation and “buffer” in the event that your other investments fall in value.