DIY investors running far riskier portfolios than they really want
Many investors who are going it alone without financial advice are taking on much more risk than they want by investing in some of the most popular investment funds, research by Wealth Horizon has found.
With the ISA deadline fast approaching, investors are looking closely at where they should put their money ahead of the April cut-off.
However Wealth Horizon, a company aiming to revolutionise the way advice is provided, has found many individuals are taking on too much risk by investing in popular funds that are not appropriate for them.
Wealth Horizon found the vast majority (69%) of UK investors are only willing to lose a maximum of between 6% and 11%1 of their initial investment, with just a quarter prepared to risk a larger loss in exchange for the potential to make more gains.
A loss of between 6-11% is far lower than those which have been incurred by many of the most popular funds during the last decade.
For example, during the credit crisis, some of the biggest funds in the UK experienced losses of more than 50% in a single month. Even in less severe times, losses above 11% are common for some of the largest funds investors are exposed to.(2)
Chris Williams, CEO of Wealth Horizon, said: “Our research shows just how at odds investors’ acceptance of risk is compared to how much risk they actually take.
“With the average investor willing to lose a maximum of 11% of their investment, it means many going it alone are actually taking far greater risks than they want to with their portfolios.”
Alternatively a balanced portfolio with a much wider range of holdings can help investors mitigate these downside risks and still generate attractive returns well above cash, without putting all their eggs in one basket.
Wealth Horizon’s own investment solutions predominately consist of a wide range of low-cost trackers, with investors’ assets spread across more than a dozen underlying products.
This means Wealth Horizon’s clients have the potential to earn healthy returns, but without the worry that a large part of their portfolio could suddenly tumble in value if they buy in at the wrong time.
Williams said Wealth Horizon’s approach is at odds with the typical DIY investor who often holds less than ten funds.
“By holding fewer funds, it means investors are vulnerable to potential market shocks, whereas our approach is to offer more diverse portfolios which have the potential to protect investors when things turn bad,” he said.
Investors can try Wealth Horizon’s innovative online advice and automated portfolio construction service at www.wealthhorizon.com