We will establish a bespoke portfolio for your savings and investments after we have discussed our specific recommendations. We do all the work.
Each portfolio has a defined objective. It might be, for example, aiming for 5-10% p.a. return on average over the next 5-10 years. Each portfolio, similarly, has an expected stated negative volatility i.e. 'the normal maximum fall we expect this portfolio to experience in a calendar year is...'
The bulk of client funds (around 70%, depending on the client) are held with ‘active asset allocating’ fund managers.
In active asset allocating funds, the fund managers move between asset classes, such as stocks, cash, bonds, commercial property, gold etc according to their views of investment and economic conditions. We believe that it is crucial to take risk 'off the table' as prices soar in, for example, stocks, and bring it back 'onto the table' when prices plummet. Taking normally a roughly 2-year future view should work very well in the long run.
Much of our client funds were in cash during late 2006 and most of 2008. We started going back into various markets in 2007 through 2008, as markets plummeted. In other words we aim to Buy Low and Sell High but without taking short term trading positions.
We believe that from 2010 or 2011 the current fall in inflation will cease and inflation will start rising again. By the end of the 2010s we can see 1970s style inflation. Thus, in the long run, to protect clients' Purchasing Power they need to have an exposure to assets which will rise faster than inflation, namely, Commodities. (With inflation, most long term investments will grow. However, most will NOT rise faster than inflation. Thus, they will lose Purchasing Power.)
Every client portfolio at Jonathan Davis WM is a bespoke portfolio with a mixture of active asset allocating funds (Low Volatility and Moderate Volatility) and strategic asset allocation funds in commodities (commodities in general, gold and agricultural stocks – High Volatility).
In strategic asset allocated funds, the investment is in a long term holding of the stated area(s) e.g. gold stocks.
Around 30% of our client holdings are in commodity stocks, according to the client’s investment risk profile. In other words, if clients seek (or need) greater returns in the medium to longer terms, we recommend allocating more to commodity funds. Commodity funds will likely be higher volatility during short term periods.
So, our clients’ portfolios are to a greater or lesser degree correlated with the wider stock market. Many of our client portfolios are effectively uncorrelated to the wider stock market.
They all share one thing in common. They all have a capital preservation stance at all times even if, during very short periods, capital is not 100% preserved in some portfolios. The only way, we know of, to secure capital absolutely in the short term, is to place money on deposit (assuming the bank doesn't go bust and you don't have more than £50,000 deposited!). To obtain greater returns than cash over the medium to long term you have to accept some volatility.
Some younger clients can accept greater volatility than retirees. We believe the greater the expected volatility the greater will be the long term returns. Volatility is inevitable and rational. It is NOT the same as can you lose all your money? That's for hedge funds. That's not what we do.
In 2008 - the year of the greatest wealth destruction in a very long time - most of our client portfolios ended broadly neutral, including all costs. Compare that to how your adviser's/stockbroker's portfolios fared... We understand most other portfolios FELL some 25% during 2008.
From the start of the crash to January 2010 ALL of our pre crash portfolios are up, net of ALL costs.