-
In the buildup to Labour’s first UK Budget for 14 years, it was widely expected that Chancellor Rachel Reeves would...
-
In September, we learned that consumer prices in the UK rose by 2.2% in the 12 months to August –...
-
Emerging markets experienced a remarkable surge in September, climbing over 7% in dollar terms, marking their strongest month since November...
-
In August, we learned that consumer prices in the UK rose by 2.2% in the 12 months to July –...
-
In March 2024, the FCA concluded a thematic review (TR24/1) into retirement income advice. Interestingly, within this review, they found that...
-
In July, we learned that consumer prices in the UK rose by 2.0% in the 12 months to June –...
-
You will have likely woken up to the news that global stock markets have fallen sharply. This appears to be because...
-
You will have seen that the Bank of England (BoE) cut interest rates by 0.25% today, the first cut since...
-
The world of politics took a surprising turn over the weekend, as we learnt that US President Joe Biden has...
-
In June, we learned that consumer prices in the UK rose by 2.0% in the 12 months to May 2024,...
-
Following the overnight news that Keir Starmer and the Labour Party won a large majority in the UK General Election,...
-
As one may suspect, we are often among the first companies called by an investment business when a fund manager...
-
In May, we learned that consumer prices in the UK rose by 2.3% in the 12 months to April 2024,...
-
Yesterday, it was announced that the UK will hold a general election on July 4th 2024. We can understand how...
-
The conscious decision to invest in one asset class over another is probably the most important investment decision we will...
-
In April, we learned that consumer prices in the UK rose by 3.2% in the 12 months to March 2024,...
-
You will have likely seen the news on Saturday. On the back of these developments, we noted that equities in...
-
In March, we learned that consumer prices in the UK had risen by 3.4% in the 12 months to February...
-
February saw diverging fortunes in markets, with stocks performing well while fixed income markets were largely down. Within fixed income, it...
-
Chancellor Hunt unveiled this year’s Budget on Wednesday in the House of Commons. Background Since the next UK general election is likely...
-
One of the most common questions we receive from our clients revolves is whether to remain in cash or transition...
-
The “Magnificent Seven” Stocks - Our View and Portfolio Exposure – Fundhouse Adviser Insights6th March 2024The concentration in the S&P 500 of just seven names – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla is...
-
In December, the annual level of UK Consumer Price Inflation rose to 4%, up from 3.9% in November (with a...
-
In November, the annual level of UK Consumer Price Inflation fell to 3.9%, down from 4.6% in October. It is...
-
November saw positive news on inflation – UK CPI data for October fell to 4.6%, a notable drop from 6.7%...
-
On Tuesday, the FCA released a 212-page Policy Statement on Sustainability Disclosure Requirements (SDR) & Investment Labels. These new rules will...
-
On Wednesday, Chancellor Hunt delivered an ‘Autumn Statement’ to give Parliament an economic update and announce new policies – “110...
-
Having seen painful double-digit inflation in late 2022, it was something of a relief in October to see UK inflation...
-
At Fundhouse (UK), we help our clients avoid pitfalls when choosing funds. Fundhouse CIO Joe Wiggins investigates why following the...
-
At Fundhouse, we dig deeper into the data to make better investment decisions for our clients. Have UK equity fund managers...
-
2022 has been an incredibly difficult year for investors. Not only have we seen steep declines in equity markets, but...
-
As a UK citizen, it is certainly worrying that we have our fourth Chancellor and (soon to be) third prime...
-
The UK commercial property market is facing a torrid environment. Not only is the economic outlook bleak; but rising interest...
-
Over the years at Fundhouse (UK), we’ve spoken to dozens of #assetmanagement firms undergoing corporate change. Today, we share insights on...
-
Based on years of observation and bitter, painful experience; here are my thoughts on the ten most significant mistakes made...
-
At Fundhouse (UK), we use our own algorithms to analyse trading patterns, giving our clients greater #investmentclarity about the funds...
-
At Fundhouse (UK), we monitor the fund universe for signs of #liquidity issues, to give our clients better #InvestmentClarity. Today, we...
-
At Fundhouse (UK) we’ve been building a #greenwashing detector to give our clients greater #investmentclarity. We’ve uncovered a number of insights...
-
In today’s blog, we look back at the many meetings that we have had with fund groups discussing ESG. Although...
-
The market has become counterintuitive: in a strongly rising market across almost all asset classes, we find expensive has beaten...
-
As part of our manager research process for a given fund, we will evaluate the corporate entity employing the investment...
-
In this article, we explore whether there is persistency in tactical asset allocation skill, by evaluating the evidence we have...
-
In this article, we discuss how the historic low yields we are seeing in credit markets today does not seem...
Loss Aversion: Is Low-Risk Investing Really Low-Risk?
|
Home » Published: 12th July 2024 This Article was Written by: Rory Maguire - Fundhouse |
It is conventional wisdom that investment decisions are usually informed by an assessment of the investor’s willingness to take risk (their risk profile). But what is investment risk?
It is usually defined in two broad ways. First is by looking back at a very similar investment to see how much money it would have lost from peak to trough. Higher historic losses are linked to higher investment risk. Second is the variation or volatility in the return of a similar investment. Smoother returns are seen as safer. These two definitions help explain why investments in listed companies (equities) are seen as high risk – they can fall a lot, and returns are volatile. Lending money to companies and governments (bonds) is seen as lower risk for the opposite reasons.
But, what if you lost less money, but it took longer to recover your losses? Is that still lower risk? Next, we compare a low-risk investment (the IA sector 0-35% shares – mostly bonds) to a high-risk investment (the IA Global sectors, which is usually 100% shares). In all cases, equities fall more major market sell-offs:
Source: Fundhouse and Financial Express, Data from 1999 to June 2024
Yet, in all cases, bar one, the next chart shows that higher-risk investments (equities) recovered losses quicker than lower-risk investments (ones that are mostly invested in bonds). Below, we measure the recovery period as the period taken from peak to recovery, not drawdown to recovery. Note that the 0-35% sector has still not recovered from the inflation-driven sell-off in 2024 on the right:
Source: Fundhouse and Financial Express, Data from 1999 to June 2024
Investing is complex, and risk is not always what it seems. When building model portfolios, we are very aware of this risk and ensure that bonds are not simply seen as diversifiers. They must have investment merit.
Speak to the team: mps@fundhouse.co.uk.
Fundhouse is the trading name of Fundhouse Bespoke Limited. Fundhouse provides investment management services to professional clients and does not provide financial advice. Importantly, this note does not represent investment advice and any reader should always speak to their financial adviser before making any investment decisions. Please note that the value of any investment may go down as well as up and you may lose capital when investing and the value of your investments may not always increase. Please ensure that you are comfortable bearing financial losses and that you are comfortable taking a long-term investment view of five years or more.