There are two main ways you can go about investing: you can do-it-yourself and create your own execution-only investment portfolio; or you can appoint a discretionary manager who will select and manage your investments for you.

This first option is fine if you have knowledge or an interest in finance, or time on your hands. These days, the volume and ease of access to information in the media can give the illusion that investing is easy. But as we discussed in the article timing the market is impossible is impossible for multiple stocks, while copying someone else doesn’t work given past performance is not necessarily a predictor of future returns!

The alternative is to delegate your financial decisions to an established discretionary investment or wealth manager, who can work with you to design a portfolio that meets your specific financial needs and appetite for risk, and then manage it for you. Inevitably, this will incur costs over and above the standard dealing costs associated with managing your own portfolio, but a good discretionary manager should be worth the investment.

Five things to look for:

1. A long-term focus

Taking a long-term view means you should not need to take more risk than you are comfortable with. Investments that promise to achieve a lot in a short period of time are almost certainly too good to be true. You could even lose some of your original investment given the close relationship between risk and reward.

Investing over the long term also allows you to benefit the most from equities – a type of investment that can really help your portfolio grow. Unfortunately, equity investments also tend to react the most to short-term events and markets can, of course, go down, as well as up – hence the need for a long-term focus and a clear investment process to remove the emotions associated with investing.

2. Understanding of risk

It is easy to be deterred by the necessary discussions about risk, but a good investment manager will mitigate risk on your behalf. However, risk is important, as without it (and investments), you could run the risk of not achieving your financial goals. As such, make sure inflation or longevity risks are also factored into your portfolio.

3. Diversification

An investment manager should be properly diversified and different types of diversification can include:

  • Multiple investments of funds rather than a very small number of direct company investments
  • Different types of assets, including a blend of equities, bonds, cash, property and alternative assets
  • Different geographies, with countries at different stages of development all around the world
  • Different industry sectors, such as communication services, energy, healthcare and information technology
  • Different investment styles, including active versus passive; growth versus value and small capitalisation stocks versus their largest peers
  • Different currencies, which is an approach not many investment managers currently take, but makes sense for a global investment portfolio.

All investments are affected by what is happening in the world, but different types behave in different ways. This means the manager can seek to maximise your investments returns, within the range of risk you are comfortable with.

4. Asset allocation approach

This is how the manager decides what percentage of your investments should be invested in which type or class of investment. The approach should take a long-term or strategic view, as well as a short-term or tactical view to respond to the world events unfolding or expected to unfold in the next year or so. They should draw on an extensive investment research capability to advise on the most appropriate asset allocation for you, from both a strategic and tactical perspective.

By actively managing the investments that are bought on your behalf, the manager seeks to benefit from how each of these investments are expected to behave.

An investment manager should not be limited by the country you call home. After all, your salary, family home and any number of your other assets are already affected by what is happening in that country. Why should your investments be in the same boat?

5. Managing costs is key

Every investment manager will say that cost is an important factor in their approach, but it really is crucial. A good manager can provide wider market access, to primary markets and institutional rates that are not available to an individual investor. However, money paid in fees and charges is money you will not have in the future. It is also money which you will no longer be able to use for investing and compounding returns.

An investment in knowledge pays the best interest

A good discretionary manager can add value by applying their experience and expertise to meet your investment goals. Most importantly, they can take an objective view and remove some of the emotion from financial decision making, which should provide peace of mind and free up your time for better things.