By Sam Kelly, Managing Partner, Chorus Financial.
One of the most overlooked areas of financial advice in Spain is risk. Everything we do in life involves a risk/reward balance. That trip to the bathroom in the middle of the night? You flick the light on to avoid the risk of tripping over your bedroom furniture, but perhaps 1 in 10 billion times someone gets electrocuted by the bedroom light switch!
We all need to eat, so we get in the car, drive down the busy roads, cross the supermarket carpark. We're balancing the risk of the trip vs the risk of not eating!
Investment is also an essential balance of risk vs reward. It is the intention of central banks and governments to keep the economy growing at a constant rate. This is managed through fiscal and monetary policy and usually inflation targets are set at between 2-3%. In basic terms this means over 10 years the average costs of the things we need to survive day to day life will increase by around 25%.
So, in our current low to zero interest rates environment, the risk is do you leave your money in the bank and lose potentially 25% of its value over ten years, or do you balance risk vs reward to either match or stay ahead of inflation with some form of investment? The number of times I've heard people say leaving money in the bank is the safer option, but for me losing a potential 25% of your savings buying power over 10 years is not a truly safe option.
One of the most important conversations I have with my clients is about their tolerance to risk versus the sort of returns they'd like to achieve. The basic rule is these two elements need to line up. At Chorus we risk profile our clients in accordance with EU regulation and UK FCA guidelines. We then tailor design an investment portfolio with the intention of maximising returns within our client's personalised risk profile.
We use some pretty advanced tools for this, and as a truly independent firm, we have the whole of market to find solutions. We can analyse and compare thousands of regulated, long-established funds from household names like Rathbone Brothers PLC, The Prudential, HSBC, Royal London etc. From these we will build a portfolio of high quality funds that have proven themselves not just year after year, but decade after decade, although it should be noted that past performance is no guarantee of future performance.
There will always be peaks and troughs in the markets, periods of calm and periods of volatility. It is essential that you have an expertly designed portfolio, suitable for your own risk tolerance, and made up of quality funds with a proven track record from recognised and trusted institutions. Do not simply settle for some in-house, off the shelf option, from your bank or financial advisor, without having explored all of your options.
Over the next few months I'm going to share more information on Chorus's industry leading approach to building portfolios, and why we're confident that our clients here in Spain have the best possible portfolios to guide them successfully through their investment goals, coupled with honest and transparent fees.