Consider a scenario in which the stock market drops 30% in one year, not unlike the asset erosion that occurred between 2000 and 2002 in the U.S. How does an investment advisor counsel a client who is now shell shocked over having to postpone his retirement for five more years so that his previously bountiful nest egg can be replenished?
Diversify, said Norwich Union.
Norwich said that IFAs should not let their clients “keep all their eggs in one basket” by investing in a small number of funds, but rather encourage their customers to build a balanced portfolio.
Instead, during its recent “Diversification is a Balancing Act” investment seminars Norwich Union showed how a portfolio that includes equities from many sectors as well as bonds and commercial real estate is more likely to produce a steady return with less volatility.
“Investing in fixed interest and commercial property funds within a balanced portfolio can reduce volatility,” said Neil Davies, head of investment product development at Norwich Union. “Combining different investments in a client’s portfolio helps produce more stable returns over time.”
“Fixed interest investments can provide a steady income and commercial property also has the advantage that it does not follow the performance of the stock market and can produce steady returns when the stock market is falling,” Davies pointed out.