MR MONEY MAKER: Spread your risk with the Personal Assets Investment Trust to avoid that sinking feeling
Welcome to spring – and, as with the British weather, the outlook for markets is mixed and changeable. One never knows quite what to expect.
I have been warning that some turbulence was inevitable, especially after such a strong run up in equity prices since last March.
So we could just shrug our shoulders and accept it. Or, more constructively, we can prepare for possible falls, in two ways.
Unsettled: The outlook for markets is mixed and changeable and one never knows quite what to expect
Firstly, put some cash aside to take advantage of sudden drops by picking up bargains. Secondly, design your portfolio to give you diversification away from shares, if for no other reason than to stop feeling so queasy when markets become volatile. Unfortunately, at the moment, cash is very unattractive. In real terms we are already in negative interest rates if you take account of inflation, but at least you can bank on the return of your money, if not much of a return on it. So let’s look at some more imaginative defence plans.
Why Does It Matter?
Rule one of investing is ‘don’t lose the stuff’, and rule two is ‘refer to rule one’.
Spreading risk means investing in other asset classes that don’t all behave in the same way. Typically, bonds are seen as a counterbalance to shares, though that does not always work.
In very dramatic market drops, there can be a shake-out across the board.
What Should I Do?
We have some choices. Picking an individual stock is by its nature less defensive than choosing a well-diversified fund.
Normally advisers would push you towards a fund of corporate and government bonds, but in this environment I would rather have good, solid and even dull stocks that are reliable providers even in uncertain times.
So, a blend of some equities from around the globe, but with some government bonds along with some index-linked and even some gold. Yes, I even include something to cover inflation, as the chance of seeing rising prices is definitely on the cards.
There are various fund managers that would fill this brief but there is one investment trust which I think is suitable for today’s position and that is the Personal Assets Investment Trust.
The past year proved its worth with much lower volatility at times when share-based portfolios and funds plunged with the sickening feeling of a bungee jump.
Another long-term favourite of mine has been the LF Ruffer Total Return fund. Both of these would make a sound foundation for a longer-term portfolio, providing a combination of reasonable gain but at a managed risk. Spring I will enjoy, but a sickening bungee jump I do not.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.