Seeing red for all the wrong reasons

The past couple of weeks have found me knee deep in paint cans at home and it’s left me slightly traumatised. The reason is that we have taken a risk in buying a variety of colours based purely on the shades indicated on the manufacturers’ charts.

Lifting the lid on each can has been an eye-opening experience as quite often the colour is wide of the mark of the one indicated on the chart. “It’ll be fine because it always dries darker…or is it lighter,” said Mrs Chessell. A worrying statement in itself.

While taking a risk when buying a few cans of paint can be costly it’s far less impactful on the wallet than investing long-term savings in a portfolio that is not quite what you think it is.

Recently Investment Adviser carried an article which focused on the ‘patchy’ provision of accurate performance data. In it my colleague Nic Spicer (Portfolio Manager and UK Head of Research at PortfolioMetrix) was quoted saying “most investment performance statistics should carry a health warning”. He qualified this by saying it’s because many performance statistics fail to reference risk, so it’s impossible to know whether they were generated in a way that aligns to an individual client’s risk appetite or need.

I guess we all regard performance as king and no-one wants to be invested in portfolios that seem to miss the mark in terms of return. This is especially true when markets are buoyant and great gains can be made. The problems start when market jitters take hold. We know from research we’ve carried out that, when you look under the lid of some of the most popular model portfolios, it’s surprising how wide of the risk appetite mark many are, exposing investors to either higher or lower risks than promised.

As Nic says in the article, “Advisers, as custodians of the client’s financial plan, have a duty to deliver returns to clients that align with their agreed risk profiles, objectives and preferences.”

At PortfolioMetrix risk-control is central to portfolio-construction and the investment team focuses on diversification of investments, continuous monitoring and periodic adjustment to ensure performance is optimised without losing risk separation as investment conditions fluctuate.

Meanwhile, over at Chessell towers, I’ve introduced my own risk strategy for decorating and will be investing in sample pots before carrying the can on the major purchases.