Multi-asset funds do exactly what they say on the tin: they contain a combination of different assets. Someone else picks the assets so that you don’t have to, serving up diversification on a plate.
We would all like to think that we are rational human beings that make sensible and logical decisions. Sadly, this is far from the truth and in reality we often make decisions fraught with biases, many of which we aren’t even aware of. This is where behavioural economics comes in, the study of behavioural biases that can impact our decisions. A subset of this study is called behavioural finance, which specifically looks at biases that impact investment decisions. This is a huge and growing topic, so this post aims to introduce the concept gently.
The investing version of the seven deadly sins might not send you straight to hell but could still send your returns up in smoke. Here are a few of the sins that can savage your portfolio – and what you can do to avoid temptation!
Whether you are buying a new car or a pair of shoes, it’s perfectly natural to shop around. You don’t want to buy a sub-par product just because it’s cheap, but equally you don’t want to spend an arm and a leg if you could have bought the same thing cheaper. It’s the same when it comes to investing. All investment products and services carry a price tag and it is important to know what you are paying for and how it compares to the wider market.
Can you guess how many times £1 would have to double to make £1,000,000? The answer, astonishingly, is just 20 times! But guess how much you would have if you doubled your initial pound 10 times? Believe it or not, it would be just £1,024.
One of the most important decisions in investing is deciding on which asset class(es) to invest in. How much you should have in each is an asset allocation decision, which is usually based on two main factors – your time horizon, and your appetite for volatility (which we discussed in our last post). We will dig into that in another post shortly, but first, let’s get to know the building blocks.
The word ‘risk’ is often bandied around in the world of investing. It’s a pretty alarming term, especially when mentioned in the same breath as your hard-earned savings. Yet other investors seem to carry on quite happily regardless. Are they just crazy adrenaline junkies or do they know something we don’t?
Most of us vividly remember the outrage when Toblerone decided to shrink its chocolate bars. As consumers, we felt totally ripped off. But it’s not just chocolate. From your daily coffee to the price of a train ticket, it just feels like your money doesn’t go as far as it used to, doesn’t it? This, my friend, is the power of inflation.