Capital is at risk.
We live in a world of 24-hour news with information feeding instantly to screens that bombard us from walls, desks and our phones. As a result, we're increasingly connected to the wider world we live in - a trend that's broadened our perspectives in some ways but can narrow them in others if we're not careful. Nowhere is this more apparent than in the world of investment. A tweet from the President can move the market in seconds, the speed and severity of some reactions making it hard to focus on anything other than the short term.
Avoid a narrowing perspective
We think this is a mistake - yes, be aware of near-term opportunities and risks, but never lose sight of the perspective that really matters - the long-term one. After all, as individuals we are rarely investing to achieve an outcome in the next days, weeks or even months. More sensibly, investments are made with a longer-term objective in mind, which might be an income in retirement or growing a pot of savings to help the kids through university, for example.
Getting the right mix
It's the long-term goals our clients are aiming for, as well as tried and tested investment principles, that form the basis of how we manage our portfolios. Keeping these to the fore of our thinking helps us turn down the distraction of short-term noise. Diversification is perhaps the most fundamental as spreading your portfolio across a host of different investments provides two key benefits:
- Tapping into a range of opportunities for income or growth.
- Tempering the impact of losses in any single area.
Contrasting income and growth
Secondly come tactical moves, where active adjustments can be made to account for near-term opportunities and risks. Just now, with the UK economy under a cloud of uncertainty, perhaps trimming exposure for some time makes sense.
This leads us to another principle - that of active management and its potential to add real value over the long term. Such is our conviction here that we spend most of our time and effort picking the best active fund managers. After all, it's been proven almost impossible to reliably predict broader asset moves from year to year, but we firmly believe that talented specialist managers can add value within their fields of expertise on a consistent basis.
Interestingly, this brings us full circle. Our clients are people saving for a future outcome and we try never to lose sight of that. At the same time, the underlying managers we entrust our clients' savings to are also people - understanding what makes them tick, how they think and work forms a key element of our investment process. Again, long-termism is important because we want to invest early with managers building what we believe will be a long and impressive track record that benefits our clients.
Don't forget - economies are cyclical so neither booms nor busts last forever. Also, markets experience good times and bad times with disappointing periods often followed by strong recoveries. It's important to keep a balanced perspective and think long-term
Gary Potter, co-head BMO Multi-Manager Past performance should not be seen as an indication of future performance.