Investment planning is at the core of most financial planning, since it is the nature of the investments you own and the returns they generate that are often of the greatest importance in achieving your goals, especially for retirement income.
FiveWays’ investment approach is based on the fact that for most people, preserving capital is more important than gaining higher returns on their money. We therefore describe our approach as fundamentally conservative and try to design portfolios that limit potential losses in the next ‘once in a generation’ crash. In our experience, crises in fact occur more often than once in a generation, and if you are drawing on your capital for retirement income you need to avoid their potentially disastrous effects.
Chris Gilchrist chairs FiveWays’ investment committee. He has written five books on personal finance and investment and edits a monthly investment newsletter, The IRS Report.
“I got my first job in financial journalism when I left university in 1970, just in time to see the end of the 1969-70 bear market. That seemed pretty bad, but after a short-lived boom we then had the father and mother of all bear markets in 1973-74 in which the value of UK shares, after adjusting for inflation, fell by two-thirds – an even bigger slump than the Great Crash of 1929 on Wall Street. Not long after that we had another crisis, when the UK was virtually bankrupt in 1976 and Chancellor Denis Healey had to go cap-in-hand to the IMF for a loan to ‘bail Britain out’.
Under Margaret Thatcher, we had a great rise in the stock market, along with a wave of privatisations including British Telecom and British Gas, but before that bull market started there was a tough period from 1979-81, and another tough time after a housing boom collapsed in 1989. Then we had a couple of crises in the nineties, one of which saw mortgage rates rising to 17%. I saw most of these events from the ringside seat you get as a financial journalist, and learnt that the one repeated mistake everyone made – professionals as well as individual investors – was to underestimate the risk of another crisis. There always was another crisis – it was only a question of how long it took to come along.
So while investors have to take risk – if you don’t, you will never get inflation-beating returns on your money – you must also be realistic and try to limit the risks to your capital to what you can realistically afford. That is the focus of myself and my colleagues on FiveWays’ investment committee – doing what we can to limit and contain risk while getting reasonable returns on your money.”