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Hands-off investing

Choppy economic waters can put people off taking financial risk

For people who want the benefits of investing in the stock market, but not the hassle of having to keep on top of every peak and trough, what options are there?

Getting going

For the beginner investor, it’s not necessary to know about investing per se, says Kevin Quinn, chief investment strategist, Bank of Ireland. “There’s a set of simple things beginner investors can do for themselves to determine the right direction to go, and a professional adviser would help with these as well.

“The type of questions to ask are: ‘What are your objectives when it comes to investing? Is there a specific return you need to achieve? What sort of time frame are you thinking, in terms of year? How much capital loss can you tolerate? How many ups and downs can you tolerate’ — which is a different thing when it comes to the experience of investing. When someone is armed with all those things, any beginner investor is ready to start and the industry has plenty of solutions that can help address these.”

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He says there are plenty of ways to start investing — the main banks, stockbroking companies, and life assurance companies all have advisers available, some of which will advise on a specific range of funds, and some of which will have quite a wide selection available. If a wider selection is sought, then there are plenty of investment brokers across the country who can advise on the options that are available in the market.

Oliver O’Connor, private client partner, Grant Thornton, says a significant proportion of the commentary regarding financial markets focuses on the performance of a single company or sector. “However, on a global level, the success or demise of one stock rarely impacts an index overwhelmingly.” Therefore, for those wishing to invest for the first time or those wanting to earn returns, the more diversified the investment the more likely of long-term success.

“A word of caution to those that wish to invest is that they should only invest when they understand what they are investing in but also fully appreciate their risk appetite for such investments. We are often very confident about our willingness to take financial risk until there are choppy waters on the horizon.”

Going (for a) broker

An individual does not need to use a broker to invest in the markets, says O’Connor. “However, where someone wants advice on what is the most appropriate investment to their particular circumstances then the advice of a financial adviser should be sought.

“Coupled with being able to advise you on what specifically suits your individual circumstances, advisers should be able and willing to challenge your views in relation to the markets and fund choices. An example of this would be where you wish to invest in a particular type of fund but the risk level associated with the fund may far exceed what risk you are willing to take.”

Going your own way

Managing your investments can be time-consuming, says Quinn, but if that’s a preference that somebody has, then there are a couple of tried and tested principles. “It is of benefit to have diversity in the different types of asset classes and the different sources of returns that are behaving differently.

“The second thing is to focus on the long term. For most investors, this is an easy thing to hear but hard to do in practice. Every investor will see periods of loss and it can be tempting to pack up the tents, so to speak, when markets go through those type of periods. But markets will be ahead of you most of the time, so it’s nearly impossible to time it.”

For those reasons, for the vast majority of people, a professionally managed fund is the obvious alternative, says Quinn. “Most of those funds operate by pooling the assets of like-minded investors who share similar risk tolerance and as a consequence, the asset allocation or mix of assets and securities is designed around similar requirements.”

Hands-off investing

For a ‘hands-off’ approach a more likely suitable investment would be what are known as ‘Multi-Asset’ funds which are available and give you exposure to asset classes based on risk criteria, says O’Connor. “These are fundamentally made up of trackers of various, global, indexes which give the investor access to the global markets while also diversifying, to some degree, from being fully invested in equity funds.

“The aspect of these funds that should benefit the individual is that their investment is not aligned to the performance of one share or one type of asset class but taking a view of the overall market and therefore being less exposed to one particular geographic region or indeed one specific sector.”

Quinn says the main option to have your assets managed in a “hands-off” way is to do it through investment funds available from life assurance companies, banks and stockbroking firms. “When it comes to participating in the stock market, most providers will have equity fund options. They differ in how they approach the market, so there are a further set of choices to be made, even if one has decided that an equity fund is the right thing to invest in.

“The question becomes do you pay for an active manager to change the mix of stocks regularly or would you prefer a passive approach where you track an index, market or country, or even a style of investing. That’s a challenging question because the outcomes of that can have an influence, and are affected by the market that we’re in.”

Some of the funds on offer in this space also provide an automated style of risk management — where exposure to risk gets dialled down when the market gets jittery and dialled up in other conditions, Quinn says. “Some providers offer funds or products that offer some level of capital security. The same principle applies for the novice investor — professional advice about the choices to be made can be hugely valuable when it comes to answering these questions.”

Edel Corrigan

Edel Corrigan is a contributor to The Irish Times