Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
I am a bit of an investment nerd. I read research notes that most normal people would consider impenetrable. But although I keep an eye on the minutiae of the markets, I’m actually rather a cautious investor and I very rarely change my portfolio. I like thinking about investment more than I enjoy doing it.
It’s important to understand your investment temperament and to act accordingly. As they say, to thine own self be true.
A note that came across my desk today reinforced this point. It was talking about the rotation in market leadership since last November. This period has seen underperformance by the defensive, growth-focused shares that thrive even when the economy is struggling. The baton has passed to the more cyclical kinds of companies whose share prices do better when the economic backdrop is improving.
The first category includes consumer staples companies selling products that we all need whatever is going on in the outside world - the likes of Unilever and Reckitt Benckiser. Technology companies like Apple would also fit in here - we are unlikely to give up our phones if the economy turns down a bit. Healthcare companies too - we don’t stop getting ill just because GDP is rising or falling.
The second group of shares includes consumer discretionary businesses, those selling items like cars or gym memberships that are a nice to have if we have some spare cash but which we can do without or delay replacing if we have to. Banks fit in here too, because they do better when the economy is humming. Industrial and materials companies too.
Wearing my investment enthusiast hat, I was interested in the research note’s conclusion that the second half of the year may well see a return to favour for the defensive companies over the cyclicals. The reason? The pace of earnings revisions, while still very much positive, is slowing. As is so often the case in investment it may be that it is better to travel than to arrive.
It was quite a technical note. I enjoyed reading it. But if I’m honest it probably won’t change how I invest.
There is no doubt that correctly anticipating changes in the relative performance of different sectors or investment styles can make a big difference to your investment returns. The challenge, however, is making these adjustments to your portfolio in time, because once everyone is starting to talk about the changing market conditions the moment will have passed. Other smarter, better-informed people will have already acted and being late as an investor is as bad as being wrong.
To make regular tweaks to your investments like this is to be a trader not a long-term investor and for many of us this sounds a lot more exciting than in reality we would find it. One reason is that it is hard to do, and a trader has to accept that a high proportion of the decisions they make will turn out to be wrong. That’s quite stressful.
For most people, investing is a means to an end - preparation for a comfortable retirement - rather than a hobby. For some of us it is maybe a bit of both. For a minority, it really is what gets us up in the morning. I sit in the middle camp but am definitely closer to the first group than the last. It’s good to know who you are.
For the more cautious investor who can live with not being George Soros but hopes to be able to retire in reasonable comfort relatively early in life, the stock market is your friend. But it does require you to treat it with respect.
So, if you don’t want to try and navigate the market’s twists and turns, make sure you are exposed to all those different investment styles. If you don’t want to pick which country will be the best performer next year, then ensure that you are well diversified geographically. And if you frankly don’t know whether the economy is peaking or continuing to recover then make sure that you’ve covered all the bases with a spread of different asset classes - bond and shares, property, commodities and cash.
And above all make sure that you entrust your money to investors who will treat your hard-earned cash as you would.
When we launched the Select 50 list of our preferred funds, we set out to find managers who would do just that. So, if you consider yourself an investor not a trader, we think it is a good starting point. And if you really don’t want to have to make any decisions at all, take a look at our Select 50 Balanced Fund - a one-stop shop for investors like me, and perhaps you too, who are more interested in the outcome of investing than the journey to get there.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Select 50 is not a personal recommendation to buy or sell a fund. This fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Currency hedging is used to substantially reduce the risk of losses from unfavourable exchange rate movements on holdings in currencies that differ from the dealing currency. Hedging also has the effect of limiting the potential for currency gains to be made. The Fidelity Select 50 Balanced fund investment policy means it invests mainly in units in collective investment schemes. There are just a few fixed limits for the three core elements in the fund. These are 30% to 70% for shares, 20% to 60% for bonds and 0% to 20% for cash. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.
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