Why you need to know your why

By Gabby Macari
Reading time: 4 minutes

Would you buy a home without first deciding what area you want to live in, how many bedrooms you need or how much you can afford to borrow for the mortgage? Making informed investment decisions needs similar planning as this will help you decide when to buy more or sell out further down the line.

Would you buy a home without first deciding what area you want to live in, how many bedrooms you need or how much you can afford to borrow for the mortgage? Making informed investment decisions needs similar planning as this will help you decide when to buy more or sell out further down the line.

What do I need to know?

Too often investors pick funds because of a cool sounding name or because it’s run by someone whose name they have seen in the press. If you want to have a robust investment strategy, you need to ask more questions and understand the answers. You wouldn’t buy a house because of the name of the street it’s on, so why would you invest in a fund because the name has a certain ring to it?

Deciding what to invest in should be based on three main pillars; what you want, what you need and what you believe. No one knows how markets will behave in the future, but every investment you make should (and will) play a role in your overall strategy of how you try to achieve your goals.

Let’s consider some reasons why you might be looking to invest in a property fund, for example:

  • I want a property fund to deliver steady capital returns over the long term with an income yield to ‘even out’ the more volatile returns I may get from equity markets.
  • I need diversification from the equity holdings in my portfolio and a property fund could provide me with that diversification.
  • I believe that it’s better to spread the risk across different types of property and not just focus on one region (i.e. UK) or one type of property (i.e. industrial). I would like to invest in a broad range of property types because I believe it is the best way to maximise the opportunity.

How will this help me?

Once you know what you are trying to achieve in terms of returns and behaviour (the want), how an investment will fit into your broader portfolio (the need), and why you think that particular asset class or sector is the best solution (the believe), the actual investment decisions become much easier. Not only is it easier to decide what to invest in, it will also be much easier to figure out what you want to do with the holding later.

Many personal investors ask questions such as ‘my investment has made money, should I sell?’ or ‘my investment has fallen, should I buy more?’. The problem with questions like these is that they are very broad and extremely subjective. Instead, let’s revisit our want, need and believe statements for the example used above.

  • Want: Do I still want property assets to help provide a steady capital return and income yield? Do I have other assets which are providing this within (or outside of) my portfolio? Is a property fund still the right way to achieve this?
  • Need: Do I still need to diversify my portfolio from equities? And do I need even more diversification (bearish) or perhaps less diversification (bullish) from this point on?
  • Believe: Do I still believe that it’s better to spread the risk across different types of property, or has anything changed in the market (or the world) which has changed my mind? For example, things may have changed, and I might believe that focusing on a particular type of property or region could be better than investing across a variety of properties.

These questions are much more helpful in deciding what to do at any given juncture of your investing journey. If there’s still value in your thesis, then you might add to your holding. Whereas if you’re reconsidering your original beliefs or requirements, it might be better to sell out and invest in something different.

Investing in a long-term exercise which should never be about making rash decisions. It’s a bit like driving – you have to know the destination, even if the route to get there may change as things come up along the way. That is why you need to know the ‘why’ before you really think about the ‘what’.

There are over 5,500* funds, ETFs and investment trusts available to personal investors in the UK. That is a lot of options even after you have figured out the ‘why’ in your investment strategy. This is where we come in to help by narrowing those thousands of options down to what we believe to be the best-in-class across asset classes, styles and regions, so that you can find your ‘what’ regardless of what you want, need and believe.


Date of Publication: 2nd September 2022

* Source: FE Analytics, 31 August 2022.

The information in this post is not financial advice, it is provided solely to help you make your own investment decisions. If you are unsure about whether an investment is appropriate for you, please seek professional financial advice. You can find more information here.

When you invest you should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future return.

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