The investment strategies you use are a key part of your financial plan. Without a good return on your investment it is going to take you a lot longer and require a lot more in savings to achieve all that you want to achieve.
So, are you using the right strategy or strategies?
In this article I’ll go through a few interesting options that you may not have come across before.
What are investment strategies?
An investment strategy is a way of investing your money into a proven system.
Rather than just picking and then investing into companies you like the look of on the stock market, you focus on risk and reward.
There is usually a method and formula for each strategy which aims to deliver you an investment return depending on the level of risk you take.
The first rule of investing is to understand that risk and reward are permanently linked. The higher rewards will only come if you take more risk. Lower risk means less chance of seeing a loss but also lower returns.
Some strategies will focus on growth whilst others will focus on protecting what you have.
You don’t need to just choose one either. It might be appropriate to choose different investment strategies for different pots of wealth.
Whatever investment strategies you choose they should be based on your goals, risk tolerance and future needs for money.
Investment strategies for different goals
Here at RTS Financial Planning our investment committee spend a huge amount of their time researching, understanding and rigorously testing various investment strategies.
We don’t want to be like other Financial Advisers and just offer the plain old boring approach. We want to give our clients genuine choice that allows them to set different expectations for different parts of their financial plans.
Here are just a few variations.
#1 – Asset Allocation
Asset allocation will form the core part of most people’s investment strategy and financial plan.
The idea behind this strategy is to try and deliver the optimal return for the level of risk you are prepared to take.
It uses different types of assets, such as equities, bonds, cash and property to diversify and reduce risk.
The aim of this strategy is very much focused on the risk side of things.
There are various different flavours of the asset allocation strategy using different types of investment funds. Some will use ‘active’ funds that try and beat the market. Others will use ‘passive’ funds that aim to track the market rather than trying to beat it. You can also find ethical versions too.
#2 – Permanent Portfolio
The Permanent Portfolio is an investment strategy that was designed by investment analyst Harry Browne in the 1980s.
It is a sort of set and forget approach to investing as the idea behind this strategy is that it should perform consistent in each type of economic environment.
The strategy has an equal allocation to equities, bonds, gold and cash. 25% in each.
Equities should perform well in times of economic growth, gold when there is inflation, bonds in recessions and cash in depressions.
Due to its relatively high proportion to cash and bonds, this strategy is at the lower end of the risk scale and doesn’t believe in trying to time or beat the market. It should underperform when markets are going up but overperform when markets are going down.
#3 – All Weather Portfolio
The All Weather Portfolio has been designed by very successful hedge fund manager Ray Dalio.
It is similar to the Permanent Portfolio described previously in that it aims to perform well in each type of economic environment. The key difference with the All Weather Portfolio is that it is slightly more active in its approach. Rather than equally weight the percentage into each asset, you would increase exposure into the asset that you think will prosper in the next phase of the economic cycle.
#4 – Barbell Strategy
A barbell is what weightlifters lift. So, if you keep an image of a barbell in mind it will help you understand this strategy.
A Barbell Investment Strategy means investing at the two ends of the risk scale and avoiding the middle.
At one end you have insurance to protect yourself, lots of cash that will give you opportunities and you also invest in yourself. E.g. courses, groups and mentors to help you learn and potential start/improve your own business.
At the other end of the scale you look at investing in very new start-ups that could potentially deliver you a 400% return on your money. This is high risk stuff so it’s vitally important that you know what you are doing.
So, by using this strategy you have cut out the middle. You don’t invest in bonds or traditional equities.
The strategy was designed by a statistician called Nicholas Taleb as he believed the ‘middle’ (equities and bonds) were too easily manipulated by governments and central banks around the world.
#5 – Bonkers Portfolio
The Bonkers Portfolio is very different to what we have looked at previously and does not believe in diversification.
It is at the high-risk end of the risk scale and is essentially a momentum strategy.
It’s a simple concept whereby you just invest in the best performing fund over the last 6 months for the next 6 months regardless of whether this fund is a gold fund, equity fund or bond fund. You then keep repeating this process every 6 months.
It’s a very volatile strategy which should only really be used for a small part of your portfolio but the returns have certainly been impressive.
As always, this article is not designed to give advice. The investment strategies that are right for you will very much depend on your individual circumstances and you should discuss your options with your Financial Adviser.
Here at RTS Financial Planning we offer our own versions of all of the above strategies so if you want to work with a Financial Adviser that is different then why not get in touch? We can discuss each strategy in more detail and give performance and volatility figures.
Better still, for a limited period we are currently offering a free pension/investment portfolio review (normal price £497). By claiming this offer below you will receive a report outlining the performance of your portfolio, charges you are paying and the risk level you are taking. It’s an ideal way to find out if you are on track to retire when you want to!
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Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.