Friday Highlight  

Clients need strategies that manage volatility

As a result, an investment strategy that increases the chances of clients staying invested should result in a suitable risk experience and provides the best chance of achieving the desired outcome. 

This is especially important as so few investors can afford to let their capital drift for them. 

Article continues after advert

Therefore, finding the right balance between capital growth and portfolio risk is crucial.

If the journey to the outcome is too rough, even if the long term expected returns may be great, the chances of investors sticking through the tough times are lower.

This approach to risk management, especially focusing on downsides, which investors feel more acutely than comparable gains, should help to keep clients invested through good times and bad. 

Outcomes-based investing also often exists in a risk-rated environment and this helps investors to understand, both at the outset and on a continuous basis, the ‘riskiness’ of their fund and compare that to their appetite.

 An investor’s needs must always come first and although they loosely fall into one of three categories - the essential need to survive, the lifestyle wants and the future legacy aspirations - they always differ enormously from person to person.

The outcome-based journey enables an investment plan that is tailored to each and every investor - detailing everything from the time it will take to achieve their goal to the milestones they will meet along the way.

It is not just investors who are seeking more meaning from their financial solutions.

A couple of years ago the FCA cautioned investors about the dangers of schemes focusing on critical yield or other comparisons using generic assumptions for hypothetical returns.

Independent of the various issues associated with the critical yield approach, the simplicity of an outcome-based solution is that it distils the investment objective back to what is meaningful to the customer. 

The current generation of workers have extremely challenging times ahead and the majority will need to make sound financial decisions to achieve the quality of life they are hoping for in their later years.

Central to this should be the adoption of outcomes-based, jargon-free investment options and there is also no reason why the same approach cannot be applied to all aspects of managing one’s finances.

Whether it is mastering everyday spending or a creating a long-term investment strategy, all actions should follow the same route to achieving financial wellness and specific financial goals.

James Klempster is director investment management at Momentum Global Investment Management