Should you invest in equities or bonds… or is there an alternative?
The challenges faced during the Covid pandemic underlined the importance of investment...
Maths was always my best subject in school. I took Advanced Algebra and Trigonometry for fun when I was sixteen. At nineteen, I voluntarily enrolled in my second Physics course – maths, science, I loved it. While I didn’t initially pursue a career with numbers, it did give me a unique perspective on my finances: it’s my way of continuing to learn and engage with maths on a daily basis. But what about those that are scared of maths or hate numbers?
‘Logic and mathematics are nothing but specialised linguistic structures.’ – Jean Piaget, Swiss psychologist
You do not have to be good at, or even like, maths to be good with money. It’s simple: spend less than you earn. No numbers, just some common sense. Not to mention there’s an app for everything. If you know how to use your phone, you can figure out a simple budgeting app and, with challenger banks like Monzo categorising your spending for you, there’s help everywhere you look to tidy your finances.
If you are having a hard time getting past the number aspect, relate spending to something else like “If I cut my Starbucks habit, I could save money and retire earlier”.
When numbers aren’t your thing, and asset allocation and portfolio diversification sends you into a cold sweat, do what every good professional does: delegate. Delegate those areas to the professionals – whether it’s speaking to a financial adviser or opting for a multi-asset fund, it will put your mind at ease and you can get back to focusing on what you do love.
Investing in multi-asset funds means you can nicely diversify your investments, but the fund manager alters the amount invested in each asset class depending on the prevailing market conditions – meaning you don’t have to worry about what Brexit is doing to the pound, or what Trump’s latest tweet is doing with trade war tensions.
Whether you’re a risk-taker or risk-adverse there’s a multi-asset fund out there for you. Funds that sit in the Mixed Investment 0-35% Shares sector are generally considered the lowest risk within multi-asset sectors because, as the name suggests, at a maximum they can only invest 35% in equities. Remember equities are what we’re talking about when we own shares in a company. Elite Rated Jupiter Distribution is one such fund in this sector and is designed to appeal to the risk-averse, while delivering a regular income.
If Mixed Investment 0-35% can invest up to 35% in equities, then it’s logical (not mathematical) that Mixed Investment 20-60% Shares funds can invest a maximum of 60% in equities and must have at least 20%. The number of different assets the funds invest in can vary from fund to fund, so when doing your research it is important to read the information about each one carefully. For example, Elite Rated Artemis Monthly Distribution fund invests solely in a combination of equities and bonds. Elite Rated BMO MM Navigator Distribution however, gains exposure to many different asset classes by buying other funds: this is sometimes referred to as a ‘fund of funds’.
If you want more risk, you may want to consider those funds can can invest 40% to 85% in equities, such as Elite Rated Jupiter Merlin Balanced. Headed up by manager John Chatfeild-Roberts, the fund currently holds 77%* in equities. It is run by the same team behind Jupiter Merlin Growth, which is in the flexible sector meaning it can invest in several different types of asset classes without the formal equity constraints previously mentioned.
Looking for a fund that invests directly in companies, as well as other funds? Neil Birrell, manager of Premier Diversified Growth, recently told us how he’s finding opportunities in the gaming industry.
The final type of multi-asset fund you may come across are those in the “Volatility Managed sector”. Similar to the flexible sector, these funds can invest in several different asset classes without equity constraints. However, their goal is to manage returns within specified volatility parameters. One such example is Rathbone Strategic Growth Portfolio, which aims to hold around two-thirds equities – currently the fund has a 58.43%** allocation to shares.
I know, I know, that’s a lot of percentages for something that’s meant to make you like maths, but a good rule of thumb when looking at multi-asset funds is the more equity exposure, the more risky it is, and vice versa. When it comes to asset allocation, diversification, researching companies and behavioural finance, leave it to the professionals running these multi-asset funds.
*FE Analytics at 28 June 2019
**Fund factsheet at 31 May 2019