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February 2009 Article - Why do we bother investing?
Pete
Posted: Wednesday, August 4, 2010 11:27 AM
Joined: 01/12/2008
Posts: 52


Why do we bother investing?

2008 has been a tumultuous year on global stock, bond, property and currency markets. Interest rates are now at very low levels, debt and greed has led to the crippling of the global economy, so why on earth would anyone consider investing?

Greater Returns – the main reason that people don’t just keep their money under their mattress (other than the risk if fire or theft) is the search for greater returns, i.e. to make the value of their money increase over time. This is necessary for one main reason… inflation. The cost of goods and services will always increase over the long term as demand grows due to a greater population and a greater desire to improve quality of life. This means that €100 will buy less in 10 years time than it will now.

The basis of investment should therefore be to beat inflation!

The type of investment used purely depends on how much we want to beat inflation by and over how long. There are many different assets that can be used to make our money grow and ‘work harder for us’ and the selection of these should be carefully considered based on an understanding of the fundamental features of each asset class and our own attitude to the risks that will be always present in each one.

Expectation of return – when discussing investment with clients I ask them to consider the return they EXPECT from different types of investment assets. I frequently find that the clients’ own EXPECTATION is wildly different to the actual return they are likely to receive and so it is important to quantify the likely return that it is realistic to expect. If one does this correctly then the different asset classes make more sense.

Forced habit – another reason that many people invest is to force themselves into saving for their future. This gives many people a feeling of security, even if the portfolio value is volatile… I call it the ‘at least I haven’t spent it’ mentality.

State or private schemes – we all know that many state retirement systems are under serious strain as the number of older retired people taking money out of the system is greater than those funding it. In the yachting industry it is very unlikely to find a yacht that funds a corporate ‘pension scheme’ and so investing for long term returns is becoming more and more important for all of us. This is a very good reason to invest or save money.

So if we have capital or income that is not needed in the short term and which we want to get a greater return on then some form of savings or investment ‘vehicle’ is required. The choice of asset class and product is then paramount to ensure that it fits with our needs and attitudes. There is a wealth of information available about investment; in fact a Google search returns 266,000,000 pages. Taking independent qualified advice could be very important at this point though the following month's articles will cover many of these issues.

This article is for information only and should not be considered as advice.

Peter Brooke is a financial planner to the English speaking expatriate community. He is based on the Cote D’Azur and is a member and partner with the Spectrum IFA Group. He can be reached on +33 6 87 13 68 71, at peter.brooke@spectrum-ifa.com or at www.spectrum-ifa.com/riviera.html

This article was published in the February 2009 edition of Dockwalk magazine.
jakekaj
Posted: Tuesday, August 17, 2010 7:48 PM
Joined: 02/08/2008
Posts: 7


Hi, Can I get your thoughts on Frontier Market investing using mutual funds? I am considering investing a chunk in them due to their potential yet am aware of the risks. I would say yes but would like a professional opinion. Also do you have any good websites for increasing financial knowledge? Your advice is much appreciated. Cheers Jake
Pete
Posted: Wednesday, August 25, 2010 4:01 PM
Joined: 01/12/2008
Posts: 52


Jake,

The frontier markets are defined as the "emerging-emerging" markets as opposed to the "developed-emerging" markets. they include the following list of countries:

Argentina

Bahrain

Bangladesh

Bulgaria

Croatia

Estonia

Jordan

Kazakhstan

Kenya

Kuwait

Lebanon

Lithuania

Mauritius

Nigeria

Oman

Pakistan

Qatar

Romania

Trinidad and Tobago

Serbia

Slovenia

Sri Lanka

Tunisia

Ukraine

United Arab Emirates

Vietnam

...as you can see there are a lot of countries to go for here and so how do you choose which is the best to target? There is a lot of discussion about bubbles forming in China and India and so some investors are starting to look for the next big thing... I would urge caution... investors have tried to do this for centuries and rarely get the call right. Having a disciplined approach and a well diversified portfolio is the key to maximising returns.

Depending upon how much you are investing you may not be able to get a good spread across these markets so you are probably best to go with either a global emerging markets fund or a continent specific fund (Latin America and Emerging Europe for example). of course these funds will also access the local 'developed-emerging markets' like Brazil or India etc but they should also have exposure to the smaller ones.

There have been some recent fund launches in the African subcontinent too. There are a couple of funds also investing directly in Frontier markets, but I would say that when selecting funds try and find the management teams who have the best resources for the areas. 

There are so many investment websites I wouldn't even know where to start, but as an adviser I use www.trustnetoffshore.com and www.morningstar.com for most of my fund research  too. both of these concentrate on researching mutual funds. 

Of course I must say that you should consider taking advice when investing.

Also be aware of the costs of entry into mutual funds, it can be cheaper (and more tax efficient) to buy funds through an insurance bond structure as you can switch funds easily and with no tax liability or upfront cost.

I hope this helps. Peter

 

 


 
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