What Are The Portfolio Skills We All Must Have?

What a slog life can be. Slogging for the qualifications necessary for one’s career, years slogging at that career, and worrying about how much of one’s income to spend and how much to save. It’s a long procession and no wonder people who finally arrive think that they should be able to put their feet up and leave the investment of those savings totally for someone else to worry about.

Certainly that’s the propaganda put about by many in the investment industry. Give us your money and relax.

Forget it. The reason is that it’s your fund, it’s your responsibility so when investment mistakes are made – and they always are – it is your loss. As you age you cannot replenish your invested funds anywhere near as readily as you once could. So you simply cannot afford to delegate total responsibility for managing your fund to somebody else.

In case you don’t believe me, consider the unpopularity of ‘capital guaranteed’ and ‘guaranteed minimum return’ investments. Over the years a range of these have been offered but they have proved singularly unattractive. The reason is that once a manager takes into account the return they can "safely" earn and deduct a reasonable fee for the time involved, there is frankly no margin for error.

Financial markets tend to be very efficient with little excess profit for managers over and above the return their investors expect. Sure there are some economies managers can gain by spreading their expertise over large pools of funds – and their clients can gain from that. But when account is taken of the volatility of returns, few if any, are in a position to consistently earn their investors a "guaranteed" return of any significance.

What do Mum and Dad do?

Insofar as investing your funds is concerned there is inescapably risk involved. Even putting money in the bank involves risk

• risk that inflation might exceed the after-tax interest rate you receive,
• risk that interest rates might rise once you’ve locked in a particular rate for a period,
• risk that the currency you’ve invested in might fall away compared to others you could have invested in.

The risk of getting it wrong is inescapable – you cannot hide. Getting it horribly wrong, to the extent your capital fund is seriously depleted, is a cost borne only by you. Very few managers will assume this risk. You cannot afford to be devestated, so unavoidably – you have to be knowledgeable.

How knowledgeable? It clearly is, for most people, an unrealistic ask for them to be investment experts. That is what advisers are best utilised for – to assist you making the investment decisions.

And you must be knowledgeable enough to understand totally their advice and what its limits are. If you don’t understand why their recommendations are what they are, obtain the knowledge so you can.

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