Neil Rossiter, Certified Financial PlannerCM at Blackdown Financial, on the importance of planning

There are many factors which affect the performance of an investment portfolio and to discuss each in detail is beyond the scope of this article; however, the main contenders are:

  • Charges 
  • Tax l Fund/market performance 
  • Asset allocation (the amount of the portfolio allocated to equities and bonds) 
  • Behaviour

Ask yourself the following question: Which of these do you feel has the most impact on your portfolio performance? My guess is that fund/market performance is likely to be either the one you have selected or certainly one of the top two or three. My belief however, is that the last item, behaviour, is the one that has the most significant impact on your portfolio. In a previous editorial I wrote that emotions and investments are like oil and water and do not mix easily. Never is this more illustrated then when we compare the average return investors receive from their investments compared to the fund/market returns.

Having read various research articles, it is evident that the average investor often receives significantly less as a return than the fund/markets in which they are invested. We also tend to see increased inflows into equities markets when they are rising and outflows when they are falling. This tells us that people are often buying high and selling low and therefore losing money.

The reason behind this could be attributed to investor behaviour such as: 

  • Lack of diversification 
  • Succumbing to euphoria or panic
  • Speculating instead of investing 
  • Investing based on past fund performance 
  • Excessive trading

The other factors do also play a part, we try to ensure that our clients: 

  • Pay the least tax 
  • Have low investment costs 
  • Have the right asset allocation in line with their risk profile

But one of the major services (and often overlooked) we provide to our clients is in the behavioural sense by helping them to avoid making the mistakes with their portfolios that other investors are making which could jeopardise their long term plans.

So, the next time you are reviewing your investment portfolio, ask yourself is it your behaviour that is effecting your return or other factors?

Neil Rossiter is a Certified Financial Planner with Blackdown Financial and can be contacted on 01823-321616 or neil@blackdownfinancial.co.uk