Competition on the capital markets is tough, with the result that profits are rarely achievable without accepting a certain amount of risk. However, not all risks come with a good chance of profit. As we can show you, some risks are worth taking, while others are not.
Basically, the markets reward investors for providing capital. On the one hand, you have a large number of businesses competing among themselves to attract investment capital; on the other, you have millions of investors out there competing for the best investment ideas and the most attractive returns. The net effect of this competition is to produce sensible prices on the financial markets.
The aim of traditional asset managers is to outperform the market. They attempt to predict future developments and profit from ‘incorrect’ market valuations. In most cases, this turns out to be an expensive and pointless exercise, with forecasts subsequently emerging as inaccurate and ‘hot’ share tips proving to be flops. It is difficult to make general forecasts, because the different risks to which investors are exposed lead to different returns. We can show you how to deal pro-actively with opportunity and risk.
Depending on your particular investment aims and risk tolerance, your ideal portfolio may contain just fixed-income securities, a mixture of fixed-income securities, equities and other investment classes or solely equities.
With fixed-income investments, the main focus is on achieving regular income and minimising the risk of value fluctuations across your entire portfolio. The level of returns is governed by three principles:
- Length of investment
Fixed-income investments with a longer term to maturity offer a higher return than short-term debt instruments.
- Credit rating
Investments in non-government bonds attract a higher interest rate and, if suitably diversified, can even reduce your overall exposure to risk. The lower an issuer’s credit rating, the higher the potential yield. This only applies, however, if your portfolio is diversified across different countries, terms, sectors and credit ratings.
- Currency effect
From the perspective of the investor’s home currency, multi-currency portfolios can make sense if they are carefully structured.
Equities are the most attractive form of long-term investment, both in nominal and in real terms.
Returns on equities are subject to another set of principles:
- Market effect
Equities can fluctuate more sharply than debt instruments and therefore provide a higher return.
Over the long term, smaller companies tend to provide a higher return than larger companies.
Undervalued companies (value equities) provide a higher return than companies with a high valuation (growth equities).
Portfolios with a higher proportion of equities - and within this category a high proportion of relatively small and low-valued companies - will tend to produce a higher return over the long term. However, the benefits of such a portfolio structure come with a higher level of risk. The prospect of higher returns involves accepting a greater risk of fluctuation. Contact us for professional advice on setting up your individual portfolio.
To be a successful investor, you have to exploit opportunities that generate returns while avoiding risks that do not provide an appropriate reward. Avoidable risks include holding a very limited range of securities; gambling on individual securities, countries, industries, currencies or interest rates; and placing too much faith in market predictions. Diversification is vital as a means of balancing out the random successes and failures of specific financial instruments. It creates a foundation that allows your portfolio to benefit from powerful economic forces. Contact us for a clear assessment of your prospects for success.
With many thousands of equities and debt instruments offered for trading at the national and international levels, it can be difficult to maintain an overview of the huge range of potential investments available on the capital markets. Securities with similar economic characteristics are grouped into asset classes, and, as we know, the pattern of price movements can vary between classes. Investors can take advantage of this diversity by choosing a portfolio structure that best reflects their individual financial situation.
The list of asset classes includes domestic and international equities in small, medium-sized and large companies (as measured by their market capitalisation); value and growth equities; equities in emerging economies; Swiss and non-Swiss debt instruments; and property. Each of these asset classes has a different role to play in the investor’s portfolio. If they are combined effectively, investors benefit from higher returns and a lower exposure to risk.
There is no single portfolio structure to suit everyone. Each investor will have a different approach to risk tolerance, with individual aims and life circumstances. Reflecting this diversity, you can be assured that we will take great care to identify the most effective structure for your investment portfolio.