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Investment Principles

Very few individuals are in the fortunate position to have sufficient cash to achieve their long term goals. As a result, most people will need to invest money in an attempt to achieve these goals and, as such, will expose their capital to risk. We take seriously our responsibility for ensuring we make appropriate investment recommendations based on sound investment principles. These principles are:

Investing is for meeting long term goals;
saving is for short term goals

• Money you may need in the short term, usually up to 5 years, should be kept in short term savings which protect capital. These include bank and building society accounts, National Savings or Government Gilts.

• You should only consider investing in equities, bonds or property when you have money to put away to meet longer term objectives.

• We adopt a structured and disciplined approach to investing which seeks to manage risk, target returns, minimise tax and above all, help you increase the probability of achieving your financial and lifestyle goals.

• We believe in investing, not speculating. While speculating can be fun, you should not use your investment capital to speculate.

• Our approach is clear in that we maintain a disciplined investment approach that supports the achievement of your strategy.

Risk and return are correlated

• High potential returns will almost always involve high potential risks. There are no low-risk/ high-return investments.

• Risk and return are closely related. The more risk you are prepared to accept, the higher the return expectations. Conversely, low returns should be a reflection of the investment's greater security.

• This relationship between risk and return can be depicted as below:

As you move left to right, you take on more risk for increased potential return. The line curves and flattens out as the marginal increase in return diminishes and you take on more additional risk.

• Investment risk comes in many forms, but to most investors risk means the potential for losing investment capital and the duration or permanency of that loss.

• Researchers have carefully defined the risk/ return ratios of all major asset classes and indentified the correlation or interdependence of different types of investments. These findings provide our best approximation of future risk and return for any given asset class or mix of asset classes.

Broad diversification, with exposure to different types of asset, reduces risk

• By including in a portfolio a mix of assets that react differently to any given market condition, you can reduce the risk of significant losses.

• Historically, the returns of the major asset categories, namely equities, bonds and property have not moved up and down at the same time. Market conditions that cause asset category to do well often cause another asset category to have average or poor returns.

• By investing in more than one asset category, you should reduce the risk that you will lose money and the overall investment returns of your portfolio should have a smoother ride.

• The graph below shows the performance over 10 years of some of the key asset classes and as you can see, there is no one asset class that wins year after year.

The most important decision is selecting the mix of assets to be held in a portfolio, not selecting the individual investments themselves

• Research has clearly established that deciding on the mix and proportion of equities, bonds and cash in a portfolio is a more important determinant of returns that deciding on the individual assets or funds.

• In working out the asset allocation for you, we will consider factors such as your financial needs, your tolerance to risk/ loss and length of time to invest.

Rebalancing the portfolio removes the risk of emotion taking over

• Regular rebalancing of portfolios brings a discipline into the investment process and removes the risk of greed and fear driven decisions.

• Selling assets that have performed relatively well over a period and reinvesting in assets that have performed less well will retain the appropriate asset allocation whilst potentially locking in gains.

Accepting the risk of short term fluctuations in the value of capital as a necessary part of achieving long term goals

• The need to try and achieve the returns necessary to achieve your long term objectives must be considered against the risk of suffering interim declines.

• We believe that, in most cases, your tolerance to risk and loss is more important in deciding on an appropriate investment portfolio than the returns needed to achieve long term goals.

• Unacceptable short term losses are likely to lead to you abandoning your plans and cashing in your investment early.

Market timing and performance chasing are losing strategies

• We believe that no one can time the market in terms of buying low and selling high and that it is time in the market that counts, not timing the markets.

An investor should not expect future long term returns to be significantly higher or lower than long term historical returns

• It is impossible to predict future returns of the different asset classes. When estimating future returns for asset classes, the long term historical returns are as good a guide as any.

• On this understanding, it is likely that long term returns from equities will be higher than that for bonds and that the return on bonds will in turn exceed returns on cash investments.

Consistently outperforming the financial markets is extremely difficult

• Economic and political uncertainties, random market movements and the rise and fall of individual companies make it extremely difficult for anyone to beat the market in the long term.

• Selecting the fund managers who will beat the market on a consistent basis is extremely difficult, if not impossible.

• On that basis, we believe it makes sense to include where possible lower cost index tracking funds in an investment portfolio.

• By minimising costs, you improve the odds of meeting your investment objectives.

Contact us

Financial Planning Partners (FPP)
19 Wellington Business Park
Dukes Ride
RG45 6LS

Email: admin@fpp-ifa.co.uk
Tel: 01344 778990

FPP are committed to dealing with clients and prospective clients in a professional and ethical manner and to that end adhere to the principals laid out in the CII Code of Ethics, a copy of which is available on request.

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Financial Planning Partners Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register No: 301132 https://www.fca.org.uk/register.

Financial Planning Partners Ltd Registered Address: 19 Wellington Business Park Dukes Ride Crowthorne Berkshire RG45 6LS. Registered in England & Wales, No. 04555216. Neither Financial Planning Partners Ltd nor its representatives can be held responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page. The Financial Conduct Authority does not regulate National Savings or some forms of mortgage, tax planning, taxation and trust advice, offshore investments or school fees planning. The information contained within this site is subject to the UK regulatory regime and is therefore targeted primarily at consumers based in the UK. A summary of our internal complaints handling procedures for the reasonable and prompt handling of complaints is available on request and if you cannot settle your complaint with us, you may be entitled to refer it to the Financial Ombudsman Service at www.financial-ombudsman.org.uk or by contacting them on 0800 023 4 567.

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