Volatility is a crude, poor measure of risk for a long term investor.
That was the conclusion of a recent report from the 300 Club a group of leading investment experts concerned about how much of the fund management industry fails to deliver the best possible outcomes for its customers.
And yet many financial advisers’ investment models are based almost entirely on risk profiling and offering “model portfolios” whose aim is to match investors attitude to risk measured by reference to volatility. The report concludes that ” volatility forecasting is only helpful in the very short term and that “the assumption that volatility is a good measure of risk is clearly wrong”.
So why is this happening? The author of the report suggests the blame lies with consultants and regulators who just wanted something that was easy to calculate and measure and were prepared to shut their mind to the fact that it was dangerously wrong.
To most of us the common sense interpretation of risk is the chance of us losing money in the medium term not how much the value will fluctuate in the short term. Selecting medium term investments based on short term volatility just doesn’t make sense and doesn’t work.
So if many financial advisers are using a deeply flawed model just to appease the regulator where does that leave us? The only answer may be to avoid those advisers and take control of our own investment decisions based on good old common sense. There is plenty of information/guidance available on line and investments can be bought, reviewed, and monitored via one of the online platforms such as Hargreaves Lansdown www.hl.co.uk far more cost effectively than using a regulated adviser.
Additional help and guidance is available from The Investment and Retirement Coach Programme. Just contact me to book a 20 minute free consultation. You will quickly find out whether you are likely to be able to get value from the on-line platforms without additional support or , if not, which of our programs will work for you.
IMPORTANT INFORMATION
This document and our on going services are not personal advice. We'll give you all the help and guidance you need to make your investment and retirement decisions, but we can't advise you. If you're not sure whether you need regulated financial advice we can put you in touch with a suitably qualified and experienced regulated adviser. Because we are not regulated by the Financial Conduct Authority you will not have access to the Financial Ombudsman Service in respect of any complaints. If you use one of the "no advice" on line services to handle investment transactions they will be Regulated and you will have access to the Ombudsman and The Financial Compensation Scheme in respect of their services. The value of investments/pension plans can fall or rise depending on market performance. The Retirement Team and The Investment and Retirement Coach are trading names of Capture Success Ltd Reg No 01825075 Tel 07770575122
