Bigger Picture to Focus on Overall Returns Not Individual Funds

Published / Last Updated on 23/03/2021

When we conduct a financial review for a client either as part of an initial review, a pre-retirement review or as part of our ongoing Money MOT Gold or Platinum services, there are some clients that focus in on the performance of individual funds.

The question may inevitably be:  "This fund did really well but that fund did not, why don't we just move it to the one with the growth".

It would be very easy to do this but when we make fund portfolio recommendations, we are trying to offer a balanced portfolio that can cope with stock markets rising or falling, interest rates rising or falling, inflation rising or falling and the economy picking up or slowing down.

Just because the US fund did well last year, does not mean it will do as well next year or indeed globally stock markets my faulter meaning you may have secured a better return if you had been exposed to other sectors such as cash, bonds, gilts and property.  It may be that just because western markets have done well this year it may be that the Far East will perform better next.

Within any portfolio, you are likely to always have some funds that went up and others that went down.  That is the nature of a balanced portfolio to offer a cushion of growth areas when other areas are falling.

If you just wanted exposure to one area only e.g. stock markets, it would likely mean that your risk profile would need to change to reflect the higher risk nature of stock markets.  During the first covid-19 lockdown, stock markets fell by 35% on average and if you had only been exposed to equities you may have lost a lot of money over just a few weeks.

The same can be said for comparing one pension scheme to another or one ISA to another.  Your pension A may have more exposure to equities and pension B may be exposed to some managed funds and inflation protected funds.  They will perform differently at different points over the years depending upon whether markets favour pension A or pension B.

Our message is clear, to be able to ride out the peaks and troughs of various markets, sectors and economic cycles, you need to look at a balanced portfolio and the look at your overall portfolio return.  Do not just look at one pension scheme in isolation or one pension fund inside your scheme, you need to consider the whole picture.

A very simple example could be, if you are looking at your ISA and its has gone down this year don't forget to the look at the value of your home which has likely gone up this year.  There will be periods when the reverse is the case.

Focus on overall returns over a period of years and not individual funds or schemes.

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