Steve Cooper
The Property Moose (PM) Property Team sees a multitude of different investment strategies that investors like you use to build your portfolios. The number one question new investors ask is: “what properties should I invest in to build the best portfolio?”. Of course, we’re not financial advisers and therefore can’t make recommendations on which properties are right for you, although we can present the facts and comment on the strategies employed by the most prolific investors.
The Telegraph’s Richard Evans states: “The key is to buy a mixture of different types of investment” (1). For many Property Moose investors this could mean investing in different property types; mixed-use, single family let (SFL) and HMO. Each property has a different target demographic and therefore different yield and capital growth potential. HMO properties tend to have higher yields than Single Family Lets as there are more tenants per property. In contrast, Single Family Lets tend to have greater potential for sale at the end of the investment term than HMOs as the latter are valued as a commercial property rather than residential, meaning the potential growth is limited.
Looking at the wider investment ecosystem, many investors feel it prudent and necessary to consider multiple asset classes e.g. property, crowdfunded property, stocks/ shares, fixed interest bonds, equities, convertibles, etc. As discussed in the PM blog article “7 Habits of Seasoned Investors”, those with the largest Property Moose portfolios tend to view it in the context of their wider investment commitments. This enables investors to minimise the impact of risks whilst maximising any potential returns. Helen Pridham of Money Observer regularly comments on the performance of her “£100,000 investment portfolio” giving a live insight in to market movements (2 - Money Observer). Although her portfolio is not involved directly in property, the insight in to how a fund manager might build their own portfolio demonstrates the need for diversification.
Different asset classes have a different level of risk attached to them, however, that risk is somewhat dependent on the level of capital you commit to each. If 100% of capital is committed to one class alone, the associated risk profile is higher than if 100% was spread across 2 asset classes or investments within the same asset class e.g. property investments spread across HMO and SFL. A balanced portfolio therefore takes in to consideration a whole world of investment types and classes to ensure no portfolio is over-exposed in one area. All investments carry risk and the basic formula is: more risk, greater potential return.
The investment strategy you choose and therefore how “balanced” or aggressive your portfolio, is based on your desired outcome over a set investment term as discussed on Investopedia (3).
Those looking to scalp significant returns in a very short time scale (circa 3 months) will typically be more aggressive in their trading/investing frequency than those looking for conservative portfolio growth over 5 years. Three questions to ask yourself are:
1. What is it that I want to achieve with my investments?
2. In what time scale do I want to achieve that?
3. What blend of assets could be balanced to enable me to achieve my aims?
Traditional investment-management- thinking used the 60/40 principle based on the notion that your portfolio would return an average of 8% per year if split 60/40 stocks/ bonds. Market Watch columnist Brett Arends berates the traditional thinking though, discussing why it no longer works (4) stating, "there is no perfect solution, that is in the nature of the markets but investors need to be braced for the possibility that the fund industry's simplistic solutions, as well as its optimistic forecasts, come with absolutely no guarantees”. Spread-betting, or diversifying, is therefore the way forward.
The soon-to- be-defunct Money Advice Service (MAS) qualifies diversification as “the Smart way to Save and Invest” (5), discussing your appetite for risk and some of the asset classes available to you. MAS does neglect to consider an important factor: what is involved in diversifying? For Jo Public retail investor there are several roadblocks in the way. Online platforms such as Property Moose, Plus500 and Oanda now give everyone access to an enormous array of investment opportunities but the simple fact is that, unless you are a seasoned, professional investor, a lot of research, clarity and understanding is required before getting involved.
Many investments are the same, it’s just the assets used to secure the investment, the method of payment and magnitude of return that differs. Shares for example, require you to understand the industry, movements in the market, company historical performance, the factors that will contribute to the success of the company and the growth of your investment and, in the case of technology companies, the fast-paced development landscape that could chew up your investment choice and spit it out without warning. Others, such as Property Crowdfunding require you to understand the numbers and the risk, conduct your own property market research, and to understand the reasons why the investment platform has selected a particular property.
The idea of a balanced portfolio is like hunting for the city of gold; the magic bullet; the pot at the end of the rainbow. In reality though, it’s entirely dependent on you and the outcome you foresee as success. Many Property Moose investors are, like you, trying to achieve a return on their investment but, in order to choose wisely, they often benefit from a conversation with a member of the Property Team. The Property Team is here to discuss your aspirations and present the facts that will enable you to make informed decisions about your portfolio. If you are at all unsure and would like to discuss your portfolio, please call on: 0207 022 0987 and we’d be very happy to help.
Disclaimer and Legals
Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.
Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).
References
1. http://www.telegraph.co.uk/finance/personalfinance/investing/10323642/The-best-foundations-for- a-solid- portfolio.html
2. http://www.moneyobserver.com/portfolio-ideas/portfolio- choices-balanced- success-norm
3. http://www.investopedia.com/terms/b/balancedinvestmentstrategy.asp
4. http://www.marketwatch.com/story/why-a- balanced-portfolio- may-not- work-1337101197387
5. https://www.moneyadviceservice.org.uk/en/articles/diversifying-the- smart-way- to-save-and-invest
