First time investors are opting to put their money in a multi-asset fund for diversification, ahead of property, global equities and fixed income.
According to the latest poll by FTAdviser Advantage, asking which asset class first time investors had chosen to put their money in, 72 per cent of advisers who responded said their clients had selected a multi-asset fund, while 17 per cent had chosen property as they invested for the first time.
The poll revealed among first time investors, only 6 per cent had allocated to fixed income and just 5 per cent of advisers said they preferred global equities.
The poll sparked a debate on Twitter, after Darren Cooke, chartered financial planner at Red Circle Financial Planning, tweeted: “No investor, first time or experienced, should ever favour a single asset class, should always hold a diversified portfolio”.
Stephen Buckle, chartered financial planner and managing director at Ashworth Financial Planning, tweeted in response: “I'd try & educate 35yr old saving for retirement that 100% equity gives them best possible potential return & that volatility doesn't matter.”
Following up with both advisers once the results of the poll were in, Mr Cooke suggested generally first time investors have a smaller amount of money to invest, in which case a multi-asset fund would be appropriate.
He explained: “If you’ve got £100,000 then maybe you don’t look at a multi-asset portfolio, instead you look at a portfolio of single asset funds.
“But as a relatively simple, straightforward way of buying a diversified investment, a multi-asset fund is going to do it for you.”
Turning to property, Mr Cooke warned: “Certainly I wouldn’t advise anybody to put all their eggs into a property fund in any way, shape or form, particularly after what we had happen last year post-Brexit where a number of property funds were closing their doors and not letting you out, or if you did come out it was with massive penalties.”
Mr Buckle explained: “I find it difficult to understand why any adviser might allow a 35 year old investing for retirement to be anything other than 100 per cent equity, regardless of what the outcome of a risk profile questionnaire might say.
“Other asset classes dampen volatility but that doesn’t matter to a 35 year old investing for retirement. Our role is to educate as well as advise.”
He suggested the investor’s behaviour will be the most significant influence on the success or otherwise of their investment plan.
“The best way to overcome behavioural biases is to understand why you’re investing and what you’re trying to achieve and then having a plan to get you there,” he added.
But Matthew Yeates, quantitative investment manager at 7IM cautioned first time investors not to take on too much risk, as “getting your fingers burnt too early” can put people off investing for life.
“For would-be first time investors worried about stockmarket volatility, don’t assume you need to take on too much risk too soon. Our research shows that taking more investment risk early on doesn’t necessarily help build up a pension pot quickly,” he explained.
“There often isn’t enough in the pot to build on until much later in life when you’ve been saving a regular sum over a long period. This is when compounding starts working best, when you’ve also probably learned a thing or two about investment.”
eleanor.duncan@ft.com
