Case Study: Diversification - Riding out market ups and downs

  • Cara Casey
  • 03 April 2023
  • 5 mins reading time

Diversification is a key investment principle here at Schroders Personal Wealth (SPW) and so we met with Personal Wealth Adviser, Andrew Davies, to discuss how diversifying an investment portfolio could help to reduce exposure to the risks of market ups and downs.

Could you tell us a little bit about how you got to where you are today as a Financial Adviser?

I started work in a TSB branch where I did every job you could think of - cashier, assistant manager, and manager. When Lloyds Bank and TSB merged in 1999, I decided to become a financial adviser and have been a regulated adviser ever since.

What I enjoy most about my job is the trusting relationships I have the opportunity to build. I’ve had some clients who I’ve looked after for around 10 years and I know all about them, and they know all about me. When they have concerns, they know they can contact me and trust me because the relationship has been going on for so long.

Each client you form a relationship with and give advice to is different. They have different needs, circumstances, preferences, and willingness to take risk, however is there a key piece of advice you tend to share with all clients?

I’d share 2 things.

Firstly, if a client of mine held a lot of money in cash, I’d make clear to them that I’d be giving bad advice if I were to tell them to leave it all in the bank because they would not get a great return on it. If I were to tell them to invest all of their money, that’s also bad advice as it would all be tied up for a period of time and it’s likely that they may need to access their savings at some point. So, what is important is having a balance between short-term cash savings and medium-term investments. At Schroders Personal Wealth, we define medium-term to be within the next three to five years.

Secondly, I always point out that everybody is different. The client I spoke to this morning, for example, will be different to the client I’ve spoken to this afternoon. This proves the importance of giving advice which is tailored to the needs of each individual based on their circumstances and financial goals.

Is there a particular scenario that you’ve experienced with a client where you’ve helped them to fully understand the benefits of having a well-diversified portfolio, so spreading their money across a range of different investment types and geographies?

I recently helped a couple in their mid-50s who needed reassurance and advice to diversify their portfolio. The clients owned their own house but also had around five rental properties. Both clients earned good money but as previously stated, they had always decided to go down the rental property route. It was no shock that when they had a further lump sum of money, they were considering using it to buy yet another rental property. The issue with only investing in property is that it can be inaccessible. Money can usually only be accessed when the property is sold.

I talked to them about diversification and the flexibility of investing. Although we recommend that investments require at least a five-year commitment, money can usually be accessed (either partially or fully) when it’s required. This meant that they were diversifying away from just property and cash which could then provide them with a better balance of their portfolio.

What is diversification?

Diversification simply means not putting all of your investment eggs in one basket. The idea is to spread your risk exposure by investing across different asset classes.

This means that investments that perform well in a diversified portfolio will likely balance or outweigh other investments that may not be performing as well. This could provide a degree of protection against major losses to your money and investments.

It is also important for investors to note that the value of investments and the income from them can fall as well as rise and are not guaranteed and they might not get back their initial investment.

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