Generating market-beating returns

Posted on March 3, 2014 by - Investment, News

How much risk are you willing to take?

It is impossible for an active manager to always outperform the market, but through the process of stock selection, active management introduces the potential of generating market-beating returns.

For those willing to take on the additional risk that comes with stock market investment, an actively managed fund may help you reach your financial goals in a way that some other forms of investment, such as cash savings, cannot.

Continuing market uncertainty
With continuing market uncertainty, we understand investors’ caution towards exposing their hard-earned money to risk in order to potentially achieve positive returns. However, we believe that even in turbulent times there is value to be found and that investing in shares and/or bonds over the long term could present a greater opportunity for reaching your financial goals.
These are a few key considerations for
all investors:

1. Focus on your goals
As life expectancies continue to increase and with retirements often lasting as long as 20 years, planning ahead and investing for the future is becoming more and
more important.

Yet with interest rates showing no imminent signs of rising, investors may not reach their financial goals if they choose to leave their money in cash over the long term. The reason being that current inflation levels are eroding away the real value of any interest earned. Therefore, a key challenge for investors is to decide whether they are prepared to take on a level of risk and to what extent in order to achieve their investment goals.

2. Why consider shares and bonds?
Making the investment decision to leave your money in cash until the markets recover could mean missing out on the opportunity of future market rises. Volatile markets can present some opportunities offering far more significant growth prospects than those found in stable and rising markets. However, it is important to remember that greater returns potential also introduces increased risk of losing the money you originally invested.

There are various types of funds to choose from. From those which predominantly invest in a particular asset type, class or region to those which invest across asset classes on your behalf, seeking to spread your investment risk in the event of a particular asset class suffering losses.

In addition, you could choose to invest in a multi-manager fund, which is a single investment portfolio consisting of multiple funds. Each underlying fund may invest across different sectors or markets offering a one-stop solution to the difficulties of fund selection and diversification. The managers use their expertise to aim to invest in the right managers and funds, in the right combination, at the right time, in order to deliver the best potential returns.

3. Investing for the long term
Negative commentary often results in investors taking flight in difficult markets and selling their investments in reaction to a sudden fall in price. This can be a costly strategy. Short-term movements in the prices of shares can be smoothed out over the long term, putting dramatic losses and sudden gains into perspective. Staying invested can increase the likelihood that your investments will benefit from rebounds in the market and minimise the overall impact of volatility on your potential returns.

The value of investments and income from them may go down. You may not get back the original amount invested. This information sets out the basics of portfolio diversification. It is not designed to be investment advice and should not be interpreted as such. Other factors will need to be taken into account before making an investment decision. The value of an investment can fall as well as rise and is not guaranteed. You may get back less than you put in. Past performance is not a guide to future performance.