What investment to use?

The use of Statistical analysis is a cornerstone of investment strategies across the world. Using statistics to prove or disprove a point in a debate or political argument is commonplace.

Without exaggeration, I have sat in hundreds of presentations from investment fund representatives and managers covering every asset class you can imagine. All of them will produce back-tested data that statistically proves their investing method is a winner.

But of course, as we know so well, they may have statistically proved to you that it’s a no-brainer strategy, yet typically less than 27% of funds out there beat what we call their benchmark. ( a standard by which something is compared) in investing, it is typically the index—for example, FTSE 100.

As of the time of writing this, there are officially more than one hundred and seventy thousand regulated open-ended funds available on the market. So if you apply the above statistic of 27% successful performance, you can see that one hundred and twenty-four thousand of them won’t perform that well by normal metrics.

When choosing how to invest your hard-earned cash, there are many things to consider, questions to ask, and essential decisions to be made.

First, what’s your appetite for risk?

The best way to frame this question is, what’s your tolerance for loss?

Many in the financial services industry will exercise verbal gymnastics when asking these questions to a would-be investor to avoid describing it in that way.

However, that is precisely the question you should ask yourself.

How would it impact my life if I lost twenty, thirty, forty or fifty per cent of this money?

You can go online and access a multitude of risk calculators for free these days, and it will spit out a score for you. Some are very good.

Some are excellent, and some are the opposite of excellent. Like anything important, we recommend triangulating your research, so choose three different ones and take the average.

Once you have worked out your appetite for risk, you would want to understand the type of strategy that suits you.

If you believe that a rising tide lifts all ships, this would be what’s known as a “Top Down” approach towards investing. This approach focuses on more macro zoomed-out factors, such as GDP, employment, and Interest Rates, before zooming in to micro factors like sectors and companies.

Or perhaps you like looking at individual companies. Then you’re a bottom-up investor. Quite simply, this focuses on individual stocks, companies’ fundamentals earnings and so on.

Then there is Value Investing, intending to choose undervalued stocks at a discount and ride the journey of growth when they finally get priced correctly.

Or perhaps you like ‘Growth Investing”, choosing companies expected to grow rapidly compared to their counterparts.

Then you have ‘Long Only” Investing. A long position is, as it states, that you are buying into companies and holding for a long time for growth.

Then there are Dividend Investment Strategies. That’s holding Stocks that pay good dividends.

There are many strategies, funds, and methods. We have mentioned just a few above. Awareness of the categories and types and being clear about your risk profile is a good starting place.

Our Advice :

– High Levels of diversification are recommended.
– Expensive fees do not necessarily equate to success.
– Stay in your lane when it comes to your risk profile.