The importance of a balanced risk portfolio

The Saltydog cautious Tugboat portfolio was set up with the target of achieving around about a 10% annual return. In the three and a quarter years that it has been operating it has done exactly that and at the same time it has avoided the four stock market setbacks that took place during this period. This demonstrates three important principles. Firstly, that the portfolio should have a balanced fund risk constitution. Secondly, that in times of market stress, going into cash is a sensible alternative to staying invested and taking the pain. Finally, you can only achieve the first two if you have a constant up-to-date supply of fund performance information from which to make your decisions.

The Tugboat has recently made full use of the two funds “CF Odey Absolute return” and “City Financial UK Equity” which are both from the Targeted Absolutebalanced-riskj Return IMA sector and from the SDI low risk “Slow Ahead” group. These have been well balanced with a variety of funds from within the slightly more risky UK Income and UK small companies IMA sectors which fall into the SDI “Steady as she Goes” and “Full steam ahead Developed” groups. When the markets have turned down then the Targeted Absolute funds have stood their ground and when the markets have gone ahead then the UK Income and UK small companies have produced substantial gains. As a result of this informed activity the portfolio has made continuous progress even whilst the markets have been volatile.

This surely must be a perfect demonstration and justification for a DIY revolution. Private investors with the fund performance numbers must take over the management of their own ISAs and SIPPs. It is totally impractable for an IFA to give this detailed attention to a client`s portfolio and even if he was to attempt this exercise, the costs to the investor would be prohibitive. “The times they are a-changing.”