The investment umbrella

Date: Monday 1st March 2010

Publication: Cyprus Living

Have you been approached to buy into investment plans that either carry a hefty initial charge or surrender penalty in the first five years ? Years of research has shown that the top performing investment fund in any one year, rarely performs in the subsequent year and you must therefore be fairly active in investment selections. I would therefore urge caution before committing your capital to schemes that carry such charges and/or penalties.

Active fund management requires a lot of time and skill. For this reason, some investors opt for managed funds. These funds are a ready made mix of individual funds, consisting of fixed interest and equities. One downside of managed funds is that individual investors are all grouped together and invest in the same fund, i.e. there is no personalisation from one investor to the other. Naturally some investors require more personalisation and sophistication of their investment assets and wish to seek non-standard opportunities. For such investors, there is instead the facility through several overseas investment banks to have a personalised investment portfolio. Such portfolios, as the name suggests, are tailored to meet the individual needs of the investor, whereby every investor is treated differently. You are therefore not treated the same as every other 'cautious investor' or 'aggressive investor''. The key is for your investment adviser to develop and manage a portfolio of separate investments that meet your specific investment objectives.

There is often a very large cost saving to be made by using the portfolio approach, especially if there is a need to buy and sell on a fairly regular basis especially as most investment funds normally carry initial charges of anywhere up to 5%. This therefore discourages the investor to sell the fund in the early years as the initial expenses have not been covered. A funds performance can vary greatly year to year, especially if the fund management team changes. Investors are therefore hugely disadvantaged when purchasing funds with large upfront fees as they are effectively being locked into the fund, regardless of performance unless they are prepared to sell at a cost and move on. 

Portfolios can instead be developed that discount initial fees on funds, whereby many upfront fees are normally 0%. This means that the investor is effectively buying funds with no initial charges. The portfolio manager can therefore recommend changes to the funds without the concern that the investor has suffered large initial charges. The portfolio can therefore be changed and managed much more effectively.

In summary, flexibility is essential and having your own personal portfolio can be much more cost effective than you might have first imagined. At Hollingsworth International, we offer this service for clients with total invested assets of €50,000 and upwards. Don't be drawn into paying upfront fees or large surrender penalties. Instead have your portfolio managed by a firm that offers the freedom to move in and out as appropriate and without the costs.