Broad Market Exposure: The Prudent Approach to Investing

“Don’t look for the needle in the haystack. Just buy the haystack!” This quote from Vanguard founder John Bogle encapsulates a key principle of investing: broad market exposure is more prudent than trying to find ‘gems’ and investing in individual stocks. This approach leaves investors with the best chance of achieving favourable returns.

The Power of Diversification and Efficiency

Investing across various asset types provides diversification, which is a key to managing risk and achieving steady returns. Using index funds for this purpose brings efficiency and allows investors to benefit from a multi-asset approach and responsible investing. The goal is to maintain market exposure regardless of the environment.

Market Exposure: Time in, Not Timing!

Staying invested matters in the medium term. This is illustrated by data showing that remaining invested even when sentiment turns negative benefits investors significantly. Indeed, on a 12-month view, average returns have been multiples higher after sentiment troughs (+24.9%) than after peaks (+3.5%) (Source: JP Morgan Asset Management).

Studies have shown that there is typically an ‘investor behaviour penalty’ in terms of lower returns for investors as behavioural biases often lead to poor timing. Specifically, investors will often enter the market at peaks only to sell or switch to cash at troughs. This penalty is estimated to be in the range of 3-7%, which is a substantial cost in the medium term. It implies lower returns of 56-276% compounded over a 15-year period. This is a stark illustration of value added by investing in a fund as opposed to ‘do it yourself’ investing.

Diversification: The Only Free Lunch in Investing?

Portfolio diversification can be implemented in numerous ways in order to grow and preserve capital, including investing across asset classes with varying characteristics. Further layers can be added by diversifying geographically and in multiple currencies. To paraphrase Shrek: “There’s a lot more to portfolios than people think. …Portfolios are like onions…Onions have layers. Portfolios have layers.”

Responsible Investing: A Key Imperative

Responsible investing is an imperative in today’s world. As signatories to the UN-supported Principles for Responsible Investment (UN PRI), many investment managers are committed to managing the assets entrusted to them responsibly. Globally recognised indexation expertise and multi-asset skills are all managed within a responsible investing framework.

Different investors will have different risk tolerances. Each investment option offers a different level of potential risk and return. This is achieved by actively managing the mix of different assets in each fund to deliver the appropriate balance between risk and return. The investment options are built primarily using indexed funds, giving efficient and broad exposure to many underlying markets and asset types all within a single fund that lets investors choose a level of risk they are comfortable with.

Conclusion

If you are seeking diversified market exposure, with a responsible investing tilt, then consider a range of investment options that offer broad market exposure. These options give investors more choices to meet all of their investment needs. Investment managers are committed to ensuring successful and sustainable outcomes for their clients. This focus has helped deliver investment solutions for decades. Why not speak to your financial advisor about how a multi-asset fund can support your investment goals.

Warning: If you invest in these products you may lose some or all of the money you invest. The value of your investment may go down as well as up. These figures are estimates only. They are not a reliable guide to the future performance of your investment. These funds may be affected by changes in currency exchange rates. Past performance is not a reliable guide to future performance.