Master the art of investment assets and risk

One of the main challenges facing a successful investor is predicting how different investments will perform. That’s because the money you get back depends on such a range of different factors, including how stock markets will perform. If you are thinking about investing, then it pays to understand the different types of assets that are available in relation to levels of risk.

 

More about assets

When securities or investments have similar financial characteristics, we describe them as falling into an ‘asset class’. There are four main types of asset classes:

  • Cash
  • Property
  • Shares
  • Fixed-interest securities (also called bonds)

If you want to manage the risk in your portfolio, you need to mix different types of assets you allocate your money to. This is known as ‘diversification’. In simple terms, you don’t put all of your eggs in one basket!

Low risk or high risk?

Every investor knows that the value of their assets can go down as well as up. Different types of assets present diverse levels of capital risk. Cash has a relatively low risk, whilst investing in shares carries the highest risk. So, if you are risk-averse you need to consider investing the highest proportion of your finance in cash. For instance, you could choose a cash ISA. If you are willing to gamble on high returns, you need to place a comparatively high proportion of your investment into shares. But you also run a higher risk of making a loss.

 

How do I decide?

If you want to rely on your investments to create a regular income, you might consider sticking with low-risk assets or broadening your portfolio to offset the chance of major loss. Often this is true for older people nearing retirement. However, if you are younger and have money to spare, you might want to take the challenge of incorporating a greater percentage of higher risk assets. Of course, this is a general view, and not individual advice.

 

I’m confused!

Experienced investors often build their own portfolios, but many of us are not quite so confident. Never fear, help is at hand! There are a range of investment funds which offer a ready-mixed allocation of assets. They can offer cautious and more aggressive alternatives depending on your approach to risk. This includes funds which shift their emphasis on risk as retirement approaches. Whatever your age, you are never too old to invest!

Is art an investment asset class?

Increasing numbers of high net worth individuals around the globe are turning to the art sector and other collectable assets, very often due to feelings of dissatisfaction with their existing investments. It’s not difficult to understand the reasons for this, as many investors lost considerable amounts of money in the 2008 financial crisis. Works of art have long been considered an emerging financial asset class and they are eminently suitable for strategic financial and estate planning.

 

Investing in art

Studies have shown that over the long term, investing in art shows prices rising above the average prices of other goods. However, different segments of the art market react quickly which can lead to drops in prices. This is particularly the case for the lower end of the art market which is much broader overall. What’s more, drops in demand and forced sales can all depress prices. The higher end of the market is more buoyant, however, as individuals with higher levels of wealth are more likely to be able to purchase art even when the economic climate is depressed.

In this respect, therefore, it can be seen that investing in art is likely to be far more successful for buyers with the capability to purchase works at the top prices.

There are a number of art indices which track movements across the fine art sector. So, if you are considering moving into art investments it would be a good idea to keep a watchful eye on prices and indices. This can be an extremely complex marketplace for any novice, and it tends to be individuals with a good knowledge who make the most profits on art.

Some of the benefits of buying art as investments include:

– art is a good hedge which protects against currency devaluations and inflation

– wise purchases make art investments far less risky

– there is no minimum investment level

– taxes can be more favourable on the sale of artworks

– insurance cover can ensure risks to works of art are minimised

– recognised works of art can be loaned for a fee to a variety of events and organisations

 

Finally, of course, works of art can provide substantial and long-term enjoyment to their owners. You can find out more about art investments at Deloitte’s publication ‘Why should art be considered as an asset class?

 

Master the art of investment assets and risk

One of the main challenges facing a successful investor is predicting how different investments will perform. That’s because the money you get back depends on such a range of different factors, including how stock markets will perform. If you are thinking about investing, then it pays to understand the different types of assets that are available in relation to levels of risk.

 

More about assets

When securities or investments have similar financial characteristics, we describe them as falling into an ‘asset class’. There are four main types of asset classes:

  • Cash
  • Property
  • Shares
  • Fixed-interest securities (also called bonds)

If you want to manage the risk in your portfolio, you need to mix different types of assets you allocate your money to. This is known as ‘diversification’. In simple terms, you don’t put all of your eggs in one basket!

 

Low risk or high risk?

Every investor knows that the value of their assets can go down as well as up. Different types of assets present diverse levels of capital risk. Cash has a relatively low risk, whilst investing in shares carries the highest risk. So, if you are risk-averse you need to consider investing the highest proportion of your finance in cash. For instance, you could choose a cash ISA. If you are willing to gamble on high returns, you need to place a comparatively high proportion of your investment into shares. But you also run a higher risk of making a loss.

 

How do I decide?

If you want to rely on your investments to create a regular income, you might consider sticking with low-risk assets or broadening your portfolio to offset the chance of major loss. Often this is true for older people nearing retirement. However, if you are younger and have money to spare, you might want to take the challenge of incorporating a greater percentage of higher risk assets. Of course, this is a general view, and not individual advice.

 

I’m confused!

Experienced investors often build their own portfolios, but many of us are not quite so confident. Never fear, help is at hand! There are a range of investment funds which offer a ready-mixed allocation of assets. They can offer cautious and more aggressive alternatives depending on your approach to risk. This includes funds which shift their emphasis on risk as retirement approaches. Whatever your age, you are never too old to invest!

What does 2019 hold for the UK property market

Property has always been regarded as something of a ‘safe’ investment in many parts of the UK. Through thick and thin, recession and quantitive easing, investing in property has been something that will very likely reap long-term rewards.

However, with mounting confusion over what Brexit actually means, and how badly leaving the EU will hamper the UK’s economy, experts are predicting that 2019 will not be a great year for investing in or buying residential property.

 

The view from the top

According to a number of property experts, 2019 is likely to be the year when people choose to improve the home they already have, rather than attempt to move elsewhere. Expanding families are far more likely to try and update and enhance their current home, simply because they will not get good value for money if they attempt to purchase something new.

According to Tarrant Parsons, an economist working with The Royal Institution of Chartered Surveyors (Rics), house prices will come to a complete standstill towards the middle of 2019, largely due to anticipated widespread uncertainty about all things financial and economic once the UK has finally departed the EU.

A similar outlook has been presented by Fionnuala Earley, the head of market insight at SellMyHome.co.uk. In fact, she has predicted that, rather than flatlining, the housing market could actually see a dip of around 1% throughout 2019. However, she is confident that, as the economy becomes more stable in subsequent years, house prices will again start to rise.

What does this all mean?

Quite simply, experts are suggesting that investing in property during 2019 will not be a particularly smart decision. That is, of course, not to say that the option should be taken off the table entirely, only that it is far more likely that 2020 and beyond will be far better for those looking to sell or buy property.

However, 2019 is still likely to offer numerous investment opportunities for savvy spenders willing to search for them. Industries that are focused on the UK, for example, will likely see their stock rise within the country over the coming months and years. And, as new foreign trade deals are signed, investors with their ear pressed to the ground will likely be able to make wise investment decisions that will flourish and reap quick dividends.

Is it a good idea to invest in geothermal?

If you’re looking to diversify your investment portfolio and you’re wondering whether geothermal energy would be a good choice, the following brief guide may assist in making a decision.

What is the geothermal sector?

Geothermals refers to an alternative form of extracting heat energy from the earth’s crust for the potential generation of electricity. It utilises the energy contained in hot fluids and rocks found in fractures beneath the surface. The world leader within this sector is currently Iceland, where very deep holes are bored into the ground to reach the hot rocks beneath. Pumping water through these boreholes returns hot water to the surface and this can either be used for the generation of electricity or for heating.

Geothermals in the UK

The first geothermal project of this nature in the UK is currently in progress and it is hoped that it will be operational by the year 2020. The project is being run by United Downs using funding sourced from the European Union, Cornwall Council and private investors. The company initially plans to drill two deep wells from its Redruth base in order to demonstrate whether geothermal power can be a reality for the area. A demo power plant which runs off steam is also being constructed to test out the viability of this project. Hot water from below ground will be pumped into a holding tank, which then powers a steam turbine in order to generate electricity.

This area of Cornwall has been recognised as most promising for geothermal production, due to an extensive amount of granite beneath the surface. Estimates show that geothermals could provide around 20% of the UK’s power, if sufficient investment is made.

In an interview with the Guardian, The Managing Director of Geothermal Engineering Ltd said: “The big problem is because nothing has been done in the UK before, it’s quite high risk. Finding funding for that risk is extremely difficult”. It’s hoped this project will be fully operational by 2020.

Geothermal test drilling has taken place in Cornwall since the 1970s, however, no funding has previously been available to launch a commercial project of this nature.

It’s always a good idea to diversify investments as much as possible, in order to build a robust portfolio. We develop the tailored investment solutions aligned to our clients’ interests and objectives. Get in touch for details.

Diversify your portfolio with alternative investments

Traditional investments, such as stocks, bonds, or mutual funds are paper assets backed by the specific company issuing those underlying stocks or bonds. If that particular company is unable to repay you or they go entirely out of business, the paper assets would be worth little or nothing at all.

Alternative investments, on the other hand, are not like traditional investments. The assets that back alternatives are tangible, meaning they are assets you can see and you can touch. Real estate is one example of a tangible asset, as well as private placements, BDCs, and LLCs.

 

Alternatives for today’s investor

Typically, traditional investments have a high correlation to the market because their underlying assets follow the same market up-swings and down-swings. The assets in an alternative investment usually do not support the same market swings as traditional investments, or at a minimum, not nearly to the same degree. This is called low or no market correlation.

Why is this important?

By combining traditional investments with alternatives, investors can achieve the same types of returns they are used to, while possibly reducing their overall portfolio volatility. Simply put, investors have the possibility to enjoy the same returns with perhaps less risk.

Another thing to keep in mind with alternative investments is that they are not suitable for everyone. Regulators specify that you must have a specific net worth or income level to participate, as well as full understanding of the risks involved in specific alternatives.

Retail versus institutional investors

Alternative investment is a new segment for both retail and institutional investors, but institutional investors have a whole process set up around how they select managers. They’re used to looking at performance track records, costs, and liquidity, and also thinking about what they own today and how a liquid alternative fund might sit alongside what they have.

In the retail space, that’s a little bit different. Often, retail investors are making decisions very quickly and opting for investments that have performed strongly very recently to include in their portfolio.