INVESTMENT IDEAS FOR 2020
Growing your money for the future
Important - This information isn’t personal advice. If you’re unsure if investing is right for you please speak to an adviser. Unlike the security offered by cash, all investments and their income can fall as well as rise in value, so you could get back less than you invest. Past performance isn’t a guide to the future.
Five funds for 2020
Our favourite picks for an unpredictable year
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made.
Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
The success of most companies isn't anchored to the health of the economy over the long run. A business’ ability to generate earnings is much more important and – crucially for investors – a far better predictor of investment returns.
There are no guarantees over what might happen next. So this year we're taking a look at what we think are a good mix of funds that could perform well in different environments. From a racier emerging markets option, to one seeking income, and another that could provide some stability when the market outlook isn’t so rosy.
Remember investments should always be made for the long term – we suggest at least five years. This article isn’t personal advice or a recommendation to invest, and remember all investments can fall as well as rise in value – you could get back less than you invest. If you’re not sure an investment is right for you, please seek advice.
Aviva Investors UK Listed Equity Income
Focused on companies that aim to make lots of cash to pay dividends
Jupiter Strategic Bond
Offering flexibility to look for value in all parts of the bond market
Aiming for growth and to limit volatility
JPMorgan Emerging Markets
A dynamic sector with long-term promise
FSSA Asia Focus
An experienced team hunting for gems in an exciting area
Investment trusts for 2020
Investing in these investment trusts isn’t right for everyone. Investors should only invest if the trust’s objectives are aligned with their own, and there’s a specific need for the type of investment being made.
Investors should understand the specific risks of a trust before they invest, and make sure any new investment forms part of a diversified portfolio. If you’re not sure an investment is right for you seek advice.
2020 has been a mixed bag for investors. While the height of the coronavirus pandemic caused stock markets across the globe to tumble in March, many have since recovered. There's still lots going on in markets though, not least because of the ongoing pandemic and Brexit rumbling on in the background in the UK, so uncertainty and volatility is likely to persist.
In reality, predicting what will happen to markets over the coming year is a futile exercise. We tend to suggest investors focus on the longer term, as ultimately the strongest companies will survive and continue to generate earnings that could help drive share prices.
Because of the uncertainty, we've picked a range of investment trusts to consider, which focus on different areas of the market and could help maintain diversification in a wider portfolio.
Investment trusts can borrow money in order to buy more investments. This is called ‘gearing’. It magnifies gains and losses, so if used it increases risk. Please make sure you’re comfortable with a trust’s approach to gearing, and the costs and charges, before investing. Details can be found in the trust’s annual report. Please read each trust’s Key Information Document too.
City of London
Templeton Emerging Markets
Aberdeen Asia Focus
Witan Investment Trust
The importance of diversification
It may be tempting to read our investment ideas for 2020, pick the one that you think sounds best and put all your money into it. But that’s not how they should be used, as it’s unlikely to be the best option for most investors. We write them to give you a starting point for your own research, not to give you personal advice.
It’s important not to put all your eggs in one basket. We always suggest investors spread their money across a range of investments.
There’s no hard and fast rule for how many investments you should hold in a portfolio. Too few can add risk, while too many can be hard to manage and mean any gains are diluted. As a rule of thumb we’d suggest holding no more than 20 funds. For most people only 10 funds are needed for a well-diversified portfolio.
The benefits of a diversified portfolio
The main reason for diversifying a portfolio is to reduce risk. If you hold just one investment and it performs well, you enjoy all the benefits. But if it performs poorly you suffer all the losses.
Diversification can help to smooth the peaks and troughs. By increasing the number of investments you hold, you decrease the impact of each one’s performance on your overall returns.
But simply holding lots of different investments doesn’t guarantee diversity. When looking to diversify your portfolio, it’s important to think about how similar your investments might be.
Holding lots of investments influenced by the same external factors could mean your portfolio as a whole performs much the same as if you held just one.
Instead, consider investments which are driven by different factors. While a general economic downturn will still hit performance, sector or geographical specific problems should only impact a limited number of investments. Though all investments can fall as well as rise in value, so you could get back less than you invest.
Funds naturally provide some diversification by holding a spread of investments, reducing the risk from any one on its own. But investors still need to consider if holding a single fund provides sufficient diversification.
Funds with a narrow focus – like geographical or sector-specific funds – will often see their assets move as one in response to market conditions. With all the assets moving in the same direction at the same time, this can mean that investors still face dramatic movements in the overall value of the fund. Though even funds with different remits can have similar performance.
The dangers of over-diversification
Despite the advantages of a diversified portfolio, too much diversification can hinder, rather than help, performance.
A very large number of holdings risks simply tracking market performance – some fund managers refer to this as “di-worse-ification”. Each holding doesn’t make up a sufficient proportion of the overall portfolio to have a significant impact on its performance. Not only does this offset any benefits from picking good investments, but a lower-cost tracker fund could be considered as an alternative.
Holding a huge number of different investments can also expose investors to higher costs – as well as being harder to monitor and manage. While there’s usually no cost to buy and sell funds, regularly trading shares will mean dealing commission and stamp duty can eat into overall returns, requiring greater performance to achieve the same results.
It’s important to regularly review and, if necessary, rebalance your portfolio to make sure it still meets your objectives. When you get closer to retirement, for example, depending on which retirement option you choose consider letting go of some riskier investments and focus on those that generate a sustainable income.
Our Portfolio Analysis tool can help clients to understand the composition of their portfolio and decide where changes might need to be made.
Finally, if you’re not sure of the suitability of an investment for your circumstances then please contact us and we can put you in touch with a financial adviser.