Factors to consider
As regular followers of Netwealth will know, a principle we encourage investors to consider is to “control the controllables” – where certain factors are worth focusing on when investing. One of these is to focus on spending time in the market rather than attempting to time when you enter and exit the market, which is notoriously difficult.
Yet acting on news or reacting to events after the market has adjusted is a natural instinct, and because many investors (like most people) are prone to cognitive and emotional biases, it’s easy to believe you can make decisions that benefit from a timely intervention. This kind of thinking can be a mistake and in the long term may well result in less favourable outcomes.
Therefore, rather than trying to time the market, we suggest that unless they require access to their funds in the short term, clients remain invested, and also: invest in a portfolio that is suitably diversified, minimise the fees they are paying, make use of their available tax wrappers and to choose a level of risk for their portfolio that is appropriate for their circumstances (taking into account their objectives, investment time horizon and ability, willingness and need to take risk).
Attractive options if you are not investing now
However, when times are uncertain – which can seem like a persistent state – we appreciate that some investors can be cautious about entering the market. We therefore offer a staggered investment facility, whereby client funds held with Netwealth (in a pension, ISA or general investment account) are initially held in cash and then only invested into their portfolio over a pre-agreed period – for example, monthly or quarterly.
This facility can give you some peace of mind if you are wary about investing larger sums over fears about the economic or investment environment.
So you may be poised to invest, but not doing so immediately – either because you are choosing a staggered investment approach or because you need your money for some other short-term requirement, such as a forthcoming house purchase. In these cases we offer attractive options to maximise the returns on your cash holdings in the interim – an important consideration now that interest rates have only recently soared for the first time since the 2007/08 global financial crisis.
Your options include:
Custodian Deposit Account – this account can save you time and money, and is principally designed for cash awaiting investment. Overnight deposits are managed across a panel of banks for diversification and credit risk management. This helps clients who typically spend a considerable amount of effort managing large cash deposits – by spreading risk across a number of institutions (usually to keep within the Financial Services Compensation Scheme (‘FSCS’) limit of £85,000 per deposit) or regularly chasing the savings accounts which pay the highest rate of interest.
But some of these savings accounts do not offer easy access to your money – our custodian account therefore provides a compelling alternative solution for clients, with an interest rate that is generally highly competitive. Furthermore, when central banks have increased interest rates these have been quickly passed through to a higher rate of interest being paid on the custodian account (countering the recent gripes the Government had with high street savings rates). No fees are charged on such cash deposits.
Liquidity Account – a discretionary managed money market fund account. We monitor and select one or more money market funds to provide highly diversified exposure to short-term deposits and commercial paper (short-term debt issued by companies). Given the nature of the underlying holdings, the rates of return on this account are usually extremely competitive vs those available on the high street. However, this account is only available on large cash balances (e.g. for sums that typically are required for something like a house purchase).
Risk Level 1 portfolio – a discretionary managed low risk fixed income portfolio. We construct and manage a portfolio of short-dated government bonds, corporate bond and money market funds that target returns in excess of cash rates. Capital values will fluctuate over time and this Risk Level 1 portfolio is therefore not a cash investment.
It is appropriate for the most conservative investors who are seeking capital preservation from a diversified portfolio with daily liquidity, rather than investing for growth or income. While you may experience low levels of volatility in portfolio values these periods are expected to be very short lived. The holding period is likely to be between 1 month and 2 years.
Being comfortable with your decisions
You should never feel pressured into making investment decisions, or feel rushed to do so. You also shouldn’t be punished for simply wanting to bide your time.
The options we highlight give you the chance to be rewarded in some way while you wait to invest, while also giving you the advantage of a swift launchpad for when you do. Of course, if you would like to discuss any of the above and how we can help you manage your money more effectively, please get in touch.
Please note, the value of your investments can go down as well as up.
Netwealth offers advice restricted to our services and does not provide independent advice across the market. We do not offer advice in relation to tax compliance, personal recommendations with regards to insurance and protection, or advise upon the transfer of defined benefit pensions.
