Let’s start by tossing a coin. Assume you have £100,000 in savings. The bet is: heads, I give you another £100,000 and you’ve doubled your money; tails, you give me your £100,000 and you’re left with nothing. The coin is fair and each outcome has a 50% chance – would you take the bet?
If you say no, you would definitely be in the majority. Most of us feel the pain of losses much more than we savour the joy of gains, so even a completely fair 50/50 bet seems too much of a risk. Especially with money we have worked hard to earn and has taken a long time to accumulate.
So how can I make the bet more palatable? What if I toss 100 coins (all at once) and you are betting £1,000 of your £100,000 savings on each coin. In theory it’s still possible that every coin comes up tails and you lose all of your savings, but of course the most likely outcome is that 50 of the coins land heads, the other 50 land tails and you are left where you started with £100,000.
You also now have a 46% chance of being up on the bet (51 or more heads) and more than an 18% chance of being at least £10,000 ahead (55 or more heads.)
More importantly, the chances of 60 or more of the coins landing as tails (you lose) is less than 3%, which means you would have to be very unlucky to lose £20,000 or more.
(Finally, for the statistically minded, your chances of losing everything have gone from 50% to something in the order of 7.889 x 10-31, a vanishingly small number.)
It all starts to sound much more reasonable. In any venture involving uncertain results, diversifying across a range of ‘investments’ drastically reduces the probability of extreme outcomes and makes participation a much more comfortable experience. Put simply – diversification reduces risk, even when there is only one game in town.
In the real world of portfolio management, where the risks are not usually 50/50 and there is a huge range of potential investments, there are even more opportunities to diversify and even more benefits from doing so. A good portfolio manager will take advantage of the following:
Finally, don’t forget that, unlike tossing a coin, portfolio management is not a game of chance. Yes, investments can go down as well as up, but a professional wealth manager should be able to demonstrate they can deliver consistent results over a long period with a greater success rate than 50%. Does yours?
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Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how their portfolios are responding to market events, or call +44 (0)1624 645000 to speak to our client services team.
If you would like to find out more about how we can help you manage your investments, please contact us on the same number as above, or complete the contact us form using the link below.
Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned may be included in clients’
portfolios. They are referred to for information only and are not intended as a recommendation, not least as they may not be suitable. You should always seek professional advice before making any investment decisions.
David is responsible for spearheading the growth of our wealth management business across the company’s international jurisdictions. Prior to taking on his current role, David was integral in developing the bank’s investment proposition for high-net-worth individuals, trustees and investment consultants. He is also a member of the bank’s executive committee.
He has over 25 years’ experience working for global blue-chip companies in both London and Jersey, and providing investment solutions to a wide variety of clients around the world. Prior to joining Nedbank Private Wealth, David spent 15 years with RBC Wealth Management where he held several senior roles, latterly leading the investment business as managing director and head of discretionary investments in Jersey.
David is a Chartered Fellow of the Chartered Institute for Securities & Investment and a Chartered Wealth Manager.
David is responsible for spearheading the growth of our wealth management business across the company’s international jurisdictions. Prior to taking on his current role, David was integral in developing the bank’s investment proposition for high-net-worth individuals, trustees and investment consultants. He is also a member of the bank’s executive committee.
He has over 25 years’ experience working for global blue-chip companies in both London and Jersey, and providing investment solutions to a wide variety of clients around the world. Prior to joining Nedbank Private Wealth, David spent 15 years with RBC Wealth Management where he held several senior roles, latterly leading the investment business as managing director and head of discretionary investments in Jersey.
David is a Chartered Fellow of the Chartered Institute for Securities & Investment and a Chartered Wealth Manager.
+44 (0)1534 823238
The week of 26 April saw markets start off relatively strongly on the back of positive news on exit strategies and potential treatments. However, by Friday, the tide had turned due to weak corporate and economic data filtering through, while Trump sought to re-escalate tensions with China.
Read moreThe week of 20 April again saw mixed market sentiment. The negative news focused on plummeting oil prices, disappointing trial COVID-19 treatment results, US travel restrictions, poor corporate earnings and weak economic data. The positive stories centred on further talk of exit strategies and a general slowdown in global case numbers.
Read moreDavid McFadzean was joined by Andrew Yeadon to talk through the main Q1 2020 news driving markets, portfolio positions and what we expect may take place in Q2 2020 and beyond.
Read moreThe week of 14 April saw mixed market sentiment as the impact of the COVID-19 weighed on corporate earnings results and economic data releases, while further talk of exit strategies and progress on a possible treatment provided some relief.
Read moreLast week – the week of 6 April – saw positive market sentiment and markets rise in value with the narrative focused on the slowing rates of growth in the number of new COVID-19 cases in parts of Europe and the US, enabling attention to shift to possible exit strategies from the lockdown and economic activity being kick-started. Unfortunately, we believe markets are being overly optimistic. Economies will struggle to reopen fully anytime soon given the need for increased hospital capacity, widespread testing, improved patient treatment, and, ultimately, the delivery of a vaccine.
Read moreFinancial markets have always been prone to react quickly, sometimes intensely, to news flows as they try to price in potential disruption to or support for economic activity.
Read moreWith the coronoavirus pandemic, the focus for many people is on the short term. Retirement planning is still important, but why is now actually a good time to think things through?
Read moreThe week starting 23 March saw governments and central banks around the world continue to take further steps to counteract some of the impact of the economic shutdown stemming from coronavirus.
Read moreDuring our 19 March webinar, David McFadzean, our head of investments, discussed recent events linked to the coronavirus pandemic with Simon Watts, our senior investment analyst. Due to the number of questions asked during the webinar, we have put together this Q&A, grouping questions together where possible, and using the information available at the time.
Read more2019 marked the 25th anniversary of the opening of Nedbank Private Wealth’s Jersey office. Your memories of 1994, if any, are likely to depend on your interests or predilections at the time or since.
Read moreInvestment performance is sometimes reported before fees and charges are taken into account and sometimes after everything has been paid, i.e. net of fees.
Read moreWe publish our total expense ratio to flag to investors exactly what they pay when investing in our portfolios. However, we include costs that others don’t always include.
Read moreWe operate in a really competitive industry. It’s one of the reasons why some people find it difficult to choose an investment manager – there’s such a huge choice! We believe there are five key points you need to consider when making your selection.
Read moreUnlike tossing a coin, portfolio management is not a game of chance and the risks are not usually 50/50. There is a huge range of potential investments to choose from and a professional wealth manager should be able to demonstrate consistent results over a long period with a greater success rate than 50%.
Read moreThe news flow on the COVID-19 coronavirus took a more negative tone over the weekend of 22/23 February, and we have started this week with a sizeable risk-off move.
Read moreThe week starting 9 March saw markets opening in disarray, with investors reacting negatively to news that the OPEC+ talks had broken down and the Saudis had sparked an oil price war with Russia over its refusal to cut production. That led to a 30% fall in the price of oil. The biggest impact will be in the energy sector, but it was also taken badly by the broader market.
Read moreDavid McFadzean was joined by Simon Watts on a webinar to talk through the latest news due to coronavirus, portfolio positions and what we might expect next.
Read moreIf you are interested in becoming a client, please complete the form via the ‘become a client’ button below. Alternatively, if you are already a client, or if you have a question about how we help clients in particular circumstances, please use the ‘contact us’ button.
We will get back to you as soon as we can during office hours, which are Monday to Friday, 8am to 8pm (UK time), except for UK public holidays.
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