Investing - Investment Options

"Options equals Independence which equals Prosperity"

Due to the fast changing financial world there are virtually an unlimited number of investments available. Being Independent we are able to recommend a number of options from a large number of companies. Which ones are right for you?This will depend on a number of factors including the main aspects (see Our Principles page) of financial planning.

We usually recommend Blue Chip Investment Managers through Funds: Funds are operated/managed by an Investment/Insurance company that raises money from individuals/companies and usually invests in stocks, bonds, property, currencies, money market securities and derivatives on their behalf.

From the beginning of the year 2000 till March 2003, the financial world has experienced a downturn, not seen since the Second World War. It was a lesson that many professional and experienced investors had learnt the hard way. One way the downfall could have been less painful or avoided was to use non-correlated investments and unit cost averaging - taking advantage of market volatility.

When recommending investments, we take great care to calculate risk. We use the following methods:

Standard volatility (deviation)
Sharpe ratio
Sortino ratio
MAR

We can broadly categorise investments in the following risk category (The below list is not exhaustive and it is for reference purposes only and has been simplified):

Capital Guaranteed
For investors whose only objective is capital guarantee and are not worried about capital erosion due to the possibility of the effects of inflation: Suitable for the short term 1-3 years.

Bank Cash Deposits: (Capital is guaranteed by the bank and there is no guarantee that the interest will match or exceed inflation. The guarantee usually is to a certain limit, depending on Government regulation)
Government Bonds/Gilts: (Yield ‘interest’ bearing government security that obliges the issuer to pay the investor a specified sum of money on a regular basis and to repay the principal amount. There is no guarantee that the yield will match or exceed inflation and capital is guaranteed by the government issuer if kept till maturity. Yields and capital may not be guaranteed if the issuer defaults, unlikely with developed nations)
Guaranteed Funds: (no guarantee that the underlined investments will produce returns in excess of inflation and capital is only guaranteed if kept till maturity. The guarantors are usually major banks)

Low Risk
For investors who require a high degree of security, but want higher returns then bank deposits.

Money market funds: (To provide a rate of return higher then a bank deposit with minimum risk to capital by accessing wholesale money markets)
Managed currency funds: (To outperform cash deposit returns available internationally. Additional capital gains may be made from holding fixed interest securities, like bonds/gilts in times of falling interest rates)
Protected Funds: (These funds are usually protected from 98-100% by a mixture of corporate and government bonds and there is usually no guarantee that the growth will exceed inflation with very little risk to capital)
Fixed Interest/Income Funds: (Security that pays a fixed rate of return. This usually refers to government and corporate bonds. Objective, to achieve an attractive level of return by actively selling and buying corporate and government bonds)

Low to Medium Risk
For investors who are looking for capital growth with limited price volatility.

Managed Funds: (The funds composition will be managed with a mixture of assets, including stocks and shares with the majority falling under low-medium risk)
With-Profit Funds: (Usually managed by large insurance companies. The capital value cannot fall as long the funds are invested. However, in adverse market conditions the companies can apply a Market Value Adjuster to reflect the losses incurred. The MVA can only be applied when funds are withdrawn. The companies apply this to protect the interest of the remaining investors. Capital growth is achieved via annual bonuses and a final (terminal) bonus, once added these bonuses cannot be taken away. The annual bonuses are generally set at a rate they believe represents long-term returns from the fund. They typically invest in Stocks & Shares, Bonds, Property and Cash. Some funds have been operating for over 160 years. The terminal bonus (if paid) represents the surplus profit that was not added while paying the annual bonus)

Medium Risk
For investors who wish to target the world major equity markets, these funds offer access to the potential of superior growth over the medium to long term. This potential for greater gain is balanced by the increased risk of price fluctuations.

International or single market managed funds: (Investments in primarily active managed portfolio of mainly large companies listed on various stock markets. I.e. UK, USA, Australia, Europe, North America etc)

Hedge - Arbitrage Investments: (Are hedge funds, profiting from differences in prices when the same security, currency, or commodity is traded on two or more markets).
Hedge or Equity Fund of Funds: A fund investing in other funds. The objective is to move money between the best funds in the industry, and thereby increasing the investor returns with more diversification than offered by a single hedge or equity fund manager.

Medium to High Risk
The worlds more specialist investment markets offer the potential for rapid capital growth. However, volatility in these markets increases the risk of significant loss.

International or single market funds: (Investments in securities of specialist markets of developing or merging markets. I.e. Corporate or Government bonds, Stocks and Shares in Japan, Asia or small company shares in the developed countries.)

High Risk
Individual stock markets and managed futures have the capacity to provide fast appreciation of capital that is offset by commensurately large falls during periods of adverse market conditions. The high risk/reward ratio makes these suitable only for a small part of a structured portfolio.

Sector and individual emerging market funds: (Investments in stocks and shares of sectors like Technology, Biotechnology and Healthcare. Individual emerging countries from Eastern Europe, Asia, Latin America etc.)

Managed Futures: (Are Alternative investments and have grown into key components of many portfolios. Understanding them now is essential for good financial risk ‘hedge’ management. Using them allows investors to make profits on upward, or even downward movements in the underlying assets. However, if the manager is not careful he can make substantial losses)

A Managed Futures programme is managed usually by one or more CTA’s, Commodity Trading Advisor. They tend to trade in a diversified portfolio of futures in stock index, bond, currency and commodities like gold, silver, agricultures and others.
The manager will diversify and apply a systematic approach to the trading of derivative instruments, seeking to exploit trends, trend reversals and other opportunities.

Derivatives are for specialised advisers/investors only

( The following explanation is not exhaustive and it is to give the reader a broad meaning only. For more detailed information, please contact us).

A Derivative is a financial contract whose value is derived from the performance of another underlined financial asset. There are two kinds of derivatives: Futures and Options. A Future is a contract to buy or sell an asset at a specified future date at a certain price. An Option is a right to buy (call) or sell (put) an asset at a specified price on or by a future date.