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Clients reducing risk in portfolio in expectation of a downturn

Clients reducing risk in portfolio in expectation of a downturn

Advisers' clients are too concerned about a correction in equity markets and the comfort of being in cash to invest more money.

The latest poll conducted by FTAdviser Advantage asked advisers what typically holds clients back from investing more money.

For 56 per cent of advisers polled, their clients were trying to time the market, while 33 per cent acknowledged their clients feared another equity market crash was due.

UK and US equity markets have been steadily climbing in 2017, which has caused many commentators to speculate whether the S&P 500 index or the FTSE 100 might be due a correction.

Claire Walsh, chartered financial planner at Aspect 8, said: “In recent reviews, I’ve had several clients who have opted to reduce the risk in their portfolios.  

“They feel they have made good gains in the past couple of years and they want to preserve capital while reducing risks. While no-one can time the market, there is definitely a feeling that there inevitably will be a downturn at some point.”

But Darren Cooke, chartered financial planner at Red Circle Financial Planning, suggested equity markets could still go higher. 

He said: “Those trying to time the market will invariably be waiting for a crash before they invest and that is probably driven by the third factor there, political and economic concerns. 

“It brings to mind the old phrase 'it’s time in the markets that matters, not timing the markets'.”

He insisted: “In truth, very few private investors do that. They invest for the long term and just sit it out.”

But Ms Walsh admitted she had never had a client tell her they were holding onto money in a bid to time the market.

The poll revealed some clients held back from committing more money to investing by keeping it set aside as cash.

Ms Walsh said: “It can be difficult for people to be honest about their reasons for holding onto cash; often there are deep-seated beliefs which they may not even have consciously articulated to themselves, let alone feel ready to share with their adviser.”

She confirmed: “The majority of my clients hold much more in cash than they need to but, by contrast, unless they need to invest more money to achieve their goals I wouldn’t push them to invest more either as there is no need to expose capital to risk if you don’t need it and feel uncomfortable with investment risk.”

eleanor.duncan@ft.com