Case study: When John Wiltshire came to me for independent investment advice, he felt that as a busi...
Case study: When John Wiltshire came to me for independent investment advice, he felt that as a businessman he had let his business take over his financial affairs. Specifically he was spending all day managing his company and no time managing the money he made from it.
What I found was that he had fallen victim to the classic file-and-forget strategy. His portfolio contained every form of packaging, produced by a wide range of vendors. He had diversified very widely by manager through managed funds.
This made his portfolio unmanageable and condemned to mediocrity.
If every investment was rated hold, he would never be able to proactively change ahead of the times, but rather be forever condemned to react passively at the speed of the average fund manager.
John thought he could do better by giving his portfolio his personal attention, once he was armed with an appropriate investment service and the independent advice of a fee-based professional.
So I sold him a subscription to an online market timing and asset allocation service I run, called Investors RouteMap.
The first task was to set up a suitable vehicle, which would give him flexibility at low cost. I run my own Sipp myself and recommended that he do the same.
As to the investment administration, this is done cheaply by discount brokers. I recommended a US firm, so he could have both a sterling and a dollar-based account, which would provide the widest range of specialist funds.
The next task was to shift the portfolio from generalist to specialist funds, on the basis that it is only possible to make an investment decisions if each holding represents a single investment idea. Some ideas might work well, others might fail, but at least we can then make decisive decisions about the problem children, and the shooting stars.
The trick was to avoid falling foul of capital gains tax, for many of the holdings were very long-term, and had achieved substantial gains. Within a portfolio worth several hundred thousand pounds, this might take time.
So I introduced both John and his wife to the annual exemption, worth some £15,000, which no one else had told them about. Then fortunately, or not, they had some tax losses on various hot stocks that had turned cold.
This gave us the opportunity two years ago to switch some £50,000 out of technology into a variety of NYSE listed emerging market country funds.
He has since made money on some, lost money on others and has broken even overall, despite the worst global bear market in living memory. That means he has still massively outperformed the buy-and-hold strategy on this part of his portfolio.
The other big change was to cash in a maturing insurance-based pension plan, and transfer the funds into the Sipp, with a view to using the US-based brokerage account for investing in the increasing range of Exchange Traded Funds. Costs have been slashed both at the front-end and annual management charges.
The funds were to be held in cash on deposit at the US brokerage account until I gave recommendations for specific investments. While he has lost a little on the exchange rate, my indecision saved him from losses on the stock markets. Therefore, last month, he was one of the few investors able to buy in size up near the bottom.
Nick Dewhirst is CEO of Professional Investment Tools
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