Portfolio Management

Building and managing a portfolio needs to be done with care, and we would strongly advise taking advice from an experienced planner, such as Isis' Louis Letourneau.

Your attitude to risk is really important and must be clearly defined - we can help you do that, by asking you to complete a series of psychometric questions and looking closely at your answers. We use this as guidance and as a discussion document.

Asset allocation is the next most important step that we would help you with and then you need to decide upon the most appropriate tax wrapper chosen carefully to fit your own circumstances.

Generally speaking, the stock market can generate higher returns in the long run than bonds or cash savings accounts, although this is not guaranteed to happen in the future. That said, you may not have the time or inclination to decide which shares to buy and which to avoid. By far the best way for most people to get exposure to the stock market, rather than buying individual shares, is via collective funds. All investments take time to grow. Managing an investment portfolio, keeping track of what's happening and spotting future trends can be a full-time occupation. At Isis Financial Planners, we do this for you.

Collective funds

Collective funds can reduce the risk associated with buying a handful of shares, because your risk is more widely spread across dozens of companies (money is pooled together with other investors in order to buy shares collectively). More importantly though, collective funds are managed by professional fund managers, who have the backing of a team of analysts to help them decide which companies to invest in. Our role is to identify and monitor the fund managers and the performance of their funds regardless of whether this is held within your ISA, pension plan, bonds or portfolio of unit trusts. Using our integrated back office system we can produce for you a single portfolio valuation report that consolidates all of your investments and clearly shows your current position.

Asset allocation

As a firm, we believe in an asset allocation approach to investment. If the asset allocation is correct from the outset, overall long term returns should be satisfactory, despite short term volatility in various sectors. We should start with understanding if your priorities are for growth or income, short term or longer term?

If you ask us to draw up a comprehensive financial plan for you, we would start with a target asset allocation showing how your overall investments should be split between the various classes. We would need to discuss this with you in detail. The factors we would look at would include your attitudes to investment risk and your plans for the future e.g. when you hope to retire.

For instance, if you require steady growth in your investments, we may advise that your portfolio should begin with containing a high proportion of equities. As retirement comes closer, the equity content should be reduced in favour of lower risk investments, such as fixed interest.

Attitude to investment risk

Investment risk can be assessed from ultra-conservative to highly speculative, sometimes expressed on a scale from 1 to 10, with 1 being very low risk and 10 being very high risk. Someone ultra-conservative investors would want to avoid stock-marked linked investments completely whereas someone who was highly speculative is prepared to accept a considerable amount of risk: almost to the extent of gambling. Attitude to investment risk need to be discussed and considered very carefully - every individual is different!

For instance, if someone is considered to be a 'realistic to aggressive' investor,this means that he or she would like to take advantage of equity investment with the prospect of good long term returns and can accept the increased short term volatility. A slightly different attitude to risk can be based on short term or long term (such as pension planning). For example, if a highest priority requirement from your pension investment is growth then it can attract a higher level of risk. On the other hand, if a short term priority would be to finance a forthcoming holiday, then security of capital and access would be paramount. We would also investigate with you any concerns about having your money invested ethically.

Choice of tax wrappers

Once we have identified your attitude to risk and agreed with an asset allocation, we need to identify the right plans suitable for you. Your tax position will be an important consideration.

We are independent financial planners and therefore have a duty to consider many types of investment arrangements for you. These are likely to include ISA and portfolios of unit trusts, (see ISA and Unit trust pages) pension plans (see pension pages) or other investment wrappers such as investment bonds. However, we can also advise on investments such as Venture Capital Trusts, Enterprise Investment Schemes, structured products etc. Many of the tax wrappers that we are able to advise on involve too much investment risk for the vast majority of clients.