22 Jan UK Expats – Are you getting the returns you deserve?
Where are we? And how did we get here?
If you transferred your UK pension(s) into a QROPS (Qualifying Recognised Overseas Pension Scheme) or into a SIPP (Self-Invested Personal Pension) recently, one of the motivations may have been to gain flexibility around how your cash is invested.
Equally, if you had excess cash sitting in a bank account, you may have chosen to invest in the hope of making a better return than the interest your bank was offering.
If you arranged this investment via a financial adviser, they will have asked you a series of questions to ascertain your “risk profile” as belonging to one of the following categories:
Your financial adviser will then have proposed a portfolio (with appropriate percentages of asset classes for your risk profile), and your investment journey will have begun. Since then, you will have received monthly statements, and attended a regular (generally 6-monthly) meeting to discuss the performance of your investments and to agree any adjustments.
All good so far, but I’m guessing that a nagging question may have persisted, in the back of your mind:
“Yes, my portfolio is up X%, but is X% what I should expect, or should it be more, or less?“.
So, what to compare returns to? Indexes to the rescue!
A percentage return figure in isolation is of little value. What we need is a “relative return” figure, which requires something to compare to!
Fortunately, there is a series of indexes maintained by PIMFA (the Personal Investment Management & Financial Advice Association), with one for each of the risk profile categories.
These indexes are based on PIMFA’s view of the appropriate proportions of asset classes (equities, bonds, cash, real estate, alternatives) that should comprise each risk-profile-based portfolio.
From PIMFA’s records of the performance of each asset class, a composite index is created and tracked for each risk profile.
What this means is that we can compare how well your GBP portfolio has performed vs. its relevant PIMFA index.
Underperformance may indicate poor choice of funds and/or incorrect asset class allocation.
Equally, outperformance may not be worth celebrating, if due to excessive risk having been taken.
Finding out how your portfolio has performed vs. the index relevant to your risk profile is a great first step in assessing whether you are getting the returns you “deserve”.
What should then follow is a deep-dive into the funds themselves to confirm whether these are appropriate for you, and performing the way they should.
I have performed this analysis now for several prospective clients and am happy to offer this complimentary service to anyone who is wondering how their GBP portfolio “should” have performed.
If you are a “Balanced” investor getting “Conservative” returns, then the sooner you find out, the better!
Written by Michael Davidson
This article aims to provide information, it does not constitute financial advice, nor should it be relied upon as such. You should speak to a financial advisor regarding your circumstances before making a financial commitment. Global Financial Consultants Pte Ltd is a Licensed Financial Advisor and is regulated by the Monetary Authority of Singapore. MAS License number FA100035-3