History tells us that the best way to enjoy a real return (i.e. better than inflation) on our savings over the long term is to invest in stock markets or property. For most of us, our largest single investment is likely to be our home so, from a financial planning perspective, it is often better to focus our savings and pension investments in stock markets.

Global opportunities

The largest stock market is the US (around six times larger than the UK) followed by Tokyo, Shanghai, Hong Kong and London. Investing overseas is beneficial as many of the world’s leading companies (e.g. Apple, Coca-Cola, Microsoft, Toyota) are not listed in London so if you restrict your investments to the UK you may compromise the opportunity for growth. However, investing overseas introduces several additional risks, including currency fluctuations and political risk, which must be considered.

Passive vs active investing

There are many elements to consider when developing your investment strategy. At InSight, we are generally supportive of active investment management, i.e. having a team of investment managers select specific companies in which to invest. The main alternative strategy is “index tracking” or “passive” which is more of a blanket approach run by computer. For many clients, a portfolio comprising active and passive funds is appropriate and that is something to be discussed individually. Active management costs more than index tracking so the returns must more than cover the extra cost and that requires regular monitoring.

Ethical investing

Ethical investing has been an option for decades and is increasing in popularity. This is an interesting topic and there are many elements to consider – often referred to as Environmental, Social and Corporate Governance (ESG). Sustainability is a more recent feature and is an assessment of whether the business activity is detrimental to our planet.

Historically, the main exclusions from an ethical portfolio would be companies involved in armaments, tobacco, pornography, gambling and alcohol. However, Russia’s invasion of Ukraine has provoked an increase in armament expenditure which is now regarded by many as essential in order to protect our democratic lifestyle. This has given many ethical investors pause for thought as they consider the moral issues involved.

Risk

Every day, we are exposed to risk in many forms. Some of them we can actively manage and others are not within our control. Life can be hazardous enough without exposing our invested capital to unnecessary risks, some of which we may not understand. At InSight, we consider your attitude to risk to be one of the fundamental building blocks of a financial strategy. We also consider your ability (emotionally and financially) to withstand volatility in investment markets which can produce unwelcome shocks from time to time.

If no-one ever took risks, Michelangelo would have painted the Sistine floor.
- Neil Simon

Any investment portfolio should be diversified on several levels (including geographically and across many types of businesses) to help reduce risk. Investing with different investment groups benefits from harnessing their strengths in different areas.

At InSight, we engage with many investment groups and gather research from multiple sources to help us select the funds we recommend to clients. As independent advisers, we have no affiliation to any group so we can construct personalised portfolios for our clients taking individual preferences and requirements into account.

Your capital is at risk. The value of investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.