Retirement, Pensions & Investments FAQs
What are the advantages & disadvantages of having Equities in your portfolio?
When you invest in equities you buy a small stake in a company with the aim of capital growth, dividend income, or a blend of the two. At Reeves we do not advise on purchasing single shares in companies due to the enhanced risks involved.
We therefore advise investment in equity funds, which is a basket of companies. This reduces the risk immensely and does not rely on the fundamentals of a single company.
Another great feature of equity funds is the vast amount of opportunities and there are well over 9,500 funds available in the market.
- Equities are easily diversified. You can invest in a number of stocks in different countries, sectors, and industries which give you various growth opportunities and diversifies your risk. (Technology, Health Care, Financial companies etc)
- Highest returns - Equities have given one of the highest historical returns among the various asset classes over the long term. If you’re looking for growth in your portfolio, investing in equity is usually the way to go.
- Income from dividends - Many companies usually distribute a portion of its earnings to its shareholders. If you’re an investor looking for passive income, a dividend-growth strategy can pay off very handsomely.
- Equities are highly liquid. Most equity funds trading on a major exchange can be easily bought and sold. This liquidity gives investors the flexibility to convert their holdings into cash quickly if needed.
- Volatility – Equity prices can rise or fall sharply because of an overreaction to good or bad news. This volatility makes equities riskier than something like bonds, cash and property.
- Knowledge - It takes knowledge and time to analyse an equity fund. Not to say that having to analyse is a bad thing (this is what separates successful investors from the rest anyway), but it simply requires more time and effort to pick the right funds as compared to picking the right savings plan for your money. This is where the help of a professional can be invaluable.
- Fees – Investing in the ‘best of the breed’ equity funds can be expensive. The most successful equity funds have the ability to charge a higher premium due to their performance track record.
Reeves - The Pension Specialists:
Our views at Reeves on equities as an asset class now is one of caution. As I have mentioned multiple time already, we are worried about the short-term risks in the global markets. However, despite our pessimistic short-term views we understand and believe that over the long term you will achieve growth by investing in equities.
Read on for two examples of the types of equities in the Reeves Tactical Model Portfolios.
Liontrust Special Situations - The Fund can invest in any companies in the UK and Ireland regardless of their size or sector, enabling the managers to find the best opportunities wherever they are across the UK stock market. The Fund Manager attempts to identify companies with a durable competitive advantage that allows the companies to defy industry competition and sustain a higher than average level of profitability for longer than expected.
We are holding ‘specialist’ types of equity funds because their nature, they do not always follow the trends of the market.
Another example of an equity fund in the portfolio is the Axa Framlington Global Technology Fund. The fund’s objective is long-term growth, principally through investment in companies engaged in the research, design and development of technologies in all sectors. The fund has a wider remit than traditional technology funds and also includes sub-sectors such as internet advertising and online recruitment. The manager favours companies entering a period of accelerating growth and therefore has a bias towards small and mid-cap stocks. The fund invests worldwide but typically has a strong bias to the US.
Both funds, have done exceptionally well over the long term and have been a great asset in our investment portfolios. As you can see, they are very different.
What are the advantages & disadvantages of having Commodities in your portfolio?
Commodities are objects that effectively come out of the Earth, such as wheat, gold, copper, aluminium, coal, cotton, and oil. Commodities of the same grade are considered fungible — that is, interchangeable with other commodities of the same grade regardless of who produced or farmed it. For example, if a mining company in America produces high-quality copper, and a different mining company in China also produces high-quality copper, the copper produced by both mining companies is fungible as long as it receives the same grade.
As a buyer of the commodity, it doesn't matter which mining company produced it as long as the same quality of copper can be received.
- Exposure to different growth opportunities. A growing demand in a commodity can see its prices rise significantly over time. For example, iron ore prices rose by more than three times in 2008-2010 driven by huge demand in China and its supercharged economic growth.
- Diversification benefits. Commodities have historically shown a low or negative correlation with equities and bonds. If you’re looking to hedge against your stock and bond investments, investing in commodities might interest you.
- Protection against inflation. While inflation weighs down your stock and bond investment returns, commodities usually benefit from inflation. Because when the price of goods and services rise, the prices of commodities needed to produce these goods and services will rise in tandem.
- Highly volatile. Commodities are one of the most volatile asset classes around. In one analysis, commodities are twice as volatile as stocks and nearly four times as volatile as bonds. This extreme volatility makes commodities risky for certain investors.
- No income generation. Unlike other asset classes, commodities don’t generate any income for the investor.
Reeves - The Pension Specialists:
Here at Reeves, our commodity of choice is currently gold. We achieve our position through our investment into a fund that tracks the spot price of gold. The fund offers a simple, cost-efficient and secure way to access the gold market by providing a return equivalent to the movements in the gold price.
If you don’t think bonds and stocks provide enough diversity, adding a little gold can help you feel a little more comfortable. Gold often moves opposite to the stock market. So, if the stock market drops, gold often heads higher. If you want to add some balance to your portfolio, gold can be one way to do it by diversifying your assets in a way that can partially protect you from a market event.
Do you have a question? Email us at email@example.com.
It is important that no actions should be taken without first taking advice. Personal circumstances and an individual’s appetite for risk means that the advice for one person may not be the same for everyone. Reeves do not advise on Defined Benefit pension schemes. Reeves do introduce a third party specialists in areas of work we do not cover. Reeves run an advanced investment portfolio management service on an advisory basis only