Investors have very short memories. For many the bursting of the Tech bubble has become shrouded in the mists of time and obscured by the significant stock market returns that we have enjoyed over the past three to four years.
In fact, most asset classes, geographical regions or investment styles have returned double digit annual growth for a large proportion of the last four years. This has undoubtedly been a good time to be an investment adviser, and even though the rises have come from a low point in 2002, the fall out of the technology stock collapse will soon fall out of the five year performance statistics.
This could become a double edged sword, because investors generally use their best performing investment as a yard stick by which all other investments in their portfolio are judged.
Across the Pond storm clouds are gathering. The American economy is in bad shape, house prices are falling and we are back at almost $2 to the pound. With the equity backed consumer demand declining, and the relative costs of imports rising it would appear that we are in for some more challenging times ahead. As a dangerous alternative, BRIC markets (Brazil, Russia, India and China) are set to be another investment trap for the investor who easily gets lured into high risk funds. They may start to look attractive if other markets fall and we will need to keep our clients perspective on risk.
It is vital that we manage the future expectations of clients now, before the markets turn. Whilst we may not be in for negative returns in the future, a more defensive approach is probably justified for most investors.
It is far better to act now with preemptive portfolio restructuring together with frank and open discussions with clients rather than to have the embarrassing review meeting at the end of the year which identifies the fact that expectations have not been met!
It’s easy to advise clients when times are good, but good communication and quality advice is most needed when markets are flat or negative.
While 2007 may not be a negative year for performance, I believe that returns will be lower, and so long as clients expect this we don’t have a problem!
Adrian Shandley is managing director of Premier Wealth Management.
The views expressed are those of the author and not those of the company he represents.IFAonline
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