The markets have been all over the place the last few years, from covid, to economies weakening, to inflation rising to an all-time high, to war and bad choices by the powers that be. Let’s face it; the odds are stacked against good returns. Markets are much more volatile than they used to be. Just as markets stabilise and everything is back to normal, something else upsets the status quo.
Is the world of investing and investment doomed, or can you still make a decent return on your financial portfolio? Investors are used to seeing negative or single-digit growth in their money that it is hard to imagine good returns. Risk is more prevalent in the market year after year, and your money is battling to work for you and earn decent returns.
How to maximise returns on investment funds?
One of the best ways to invest with the prospect of a good return is diversification. It is difficult to time the market, so spreading the risk of your investment to is an excellent way to help avoid any losses. The impact of a loss may only occur on one fund while the other funds in your portfolio remain profitable.
Types of Investment Diversification
- Different asset classes – these are the traditional equities, bonds and cash arenas, and then alternatives. Equity stock or share is more profitable, of course, but is also more volatile. Investing in cash and bonds tends to be more stable but offers lower returns for investors. Alternatives include investing in gold and precious metals, art, property etc. A good balance of asset classes should spread investment risk.
- Different sectors – invest in funds or shares that are spread out over different sectors, e.g. financials, energy, infrastructure, property, tech etc. Not all sectors react the same to global events. While stocks and shares in one sector perform poorly, stocks and shares in another industry may perform better. Investors choose funds that have a variety of sectors to help mitigate risk.
- Different economic regions – each economic region or market reacts differently to global influencers. Check that the fund you invest in has a variety of stocks from different regions. Investing in various regions will help spread the risk of loss, e.g. Asia markets, US, Europe, UK, South America markets etc.
Diversified funds are an excellent way to invest for retirement. They are long-term investments that reap favourable average returns over time.
Is an ESG fund a good investment choice?
Environmental, social, and governance (ESG) investing is investing in shares of companies that follow corporate governance and act responsibly and sustainably. This is in how they treat employees, how they operate, and how environmentally friendly their processes are. ESG funds protect the environment and still have the potential for good returns.
A recent study has found that companies with high ESG scores have delivered better risk-adjusted returns than those with low ESG scores and, over the last five years, have often outperformed non-ESG funds.
deVere offers an ESG sustainability fund through DVAM funds.
Are structured products a good investment for investors?
Structured products or fixed-income funds are suited to those investors with a lump sum who want to earn a fixed income on a deposit, as they provide a steady income stream and more stable returns than stocks.
Fixed Income products are generally understood to carry lower risks than stocks; however, since the risk is lower, they may not offer the most significant potential return but can play an essential role in a diversified, balanced financial portfolio.
A financial advisor can help diversify your investment portfolio and structure it as tax efficiently as possible. A carefully selected diversified fund can mitigate risk and offer favourable returns during uncertain economic times.