Setting aside some investment money that is going to actually generate some sort of return is no easy matter in this age of low interest rates and global economic upheaval.
Some tuck a little away in a pension fund every month and hope it will not go belly-up, a growing number are choosing to dip a toe into the buy to let market, and still more are choosing the world of stocks and shares.
For the latter category, using a fund manager to make the decisions for you seems a sensible choice. After all, these are the people who live and breathe investments, so they are certain to get you the best return, right? That is probably true, but blindly entrusting your financial wellbeing to someone else is equally likely to end in tears unless you ask some pertinent questions.
What stocks are in the portfolio?
It is the most fundamental question of them all, yet many investors have no idea what companies they are investing in. A fund manager will have been through all the numbers, but perhaps you have other considerations that go beyond financial returns. Ethical investment portfolios only consider stocks that meet specific criteria regarding corporate social responsibility, green credentials, the sectors in which they operate and so on. If that is important to you, tell your broker. There is even a socially responsible investing app that will help you find the stocks in which you can invest with a clear conscience.
What returns can you expect?
Making a profit that is superior to simply leaving your money sitting in a savings account is the whole point of investing, so this is another very basic question, yet it is one that some investors are shy to ask about. Of course there are no guarantees and investments can go down as well as up, but your broker should be able to provide some solid projections on what your investments should yield after tax.
What is the thinking behind the asset allocation?
Research has shown time and again that the long-term performance of your portfolio depends more on the investment classes than the specific securities you own. Understanding the mix in your portfolio of bonds, stocks, CFAs, crypto and whatever else is vitally important. The deeper you go on this point, the more confident you can become that you and your adviser are genuinely aligned strategically and that the portfolio is geared towards your own specific objectives, constraints and risk appetite.
Are there other options you should be considering?
There might be alternative investments to which your fund manager does not have access. If so, you need to know about them and at least weigh them as an option. A good manager will not be shy about discussing them.
What about liquidity?
Investors seldom decide to suddenly cash in all their holdings, but nobody knows what tomorrow will bring. You at least need to know what your investments are worth in real time and just how liquid they are if you need a sudden cash injection.
